incorporating sustainability in investment decision … · incorporating sustainability in...

INCORPORATING SUSTAINABILITY IN INVESTMENT DECISION MAKING FOR

INFRASTRUCTURE PROJECTS

Angela Reidy B Eng (Civil), MBA (Technology Management)

Submitted in fulfilment of the requirements for the degree of

Doctor of Philosophy

School of Engineering and Built Environment

Faculty of Science and Engineering

Queensland University of Technology

2018

Incorporating sustainability in investment decision making for infrastructure projects i

Keywords

Benefit

Business case

Cost Benefit Analysis

Decision making

Decision-making process

Investment appraisal

Investment logic

Policy

Sustainable

Sustainability

Value

Values

ii Incorporating sustainability in investment decision making for infrastructure projects

Abstract

The United Nations Sustainable Development Goals (SDGs), adopted in 2015,

present a refreshed international commitment to sustainability. In order to respond to

the SDGs, infrastructure providers must review and revitalise efforts that address

sustainable development in their operations. Sustainability continues to be embedded

in government policy, and many infrastructure providers publicly state organisational

commitments to sustainability practice. Sustainability captures systems thinking and

requires an integrated approach to analysis across the social, environmental and

economic domains.

Sustainability practice for infrastructure is largely focused on the incorporation

of sustainability initiatives in design solutions. Hence, project designs may be

optimised through a range of sustainability features such as managing resource use and

emissions, designing for resilience and incorporating initiatives to improve health and

safety. The sustainability initiatives would apply to a predetermined solution assessed

in a project business case.

However, in project management practice, strategic decision making at the front

end of projects, centred on the findings of a business case, has the greatest opportunity

to influence sustainability outcomes. The business case is underpinned by economic

analysis that would typically consider a range of solutions, from ‘do nothing’ to both

infrastructure and non-infrastructure interventions. Current practice requires that

decisions on major investments are typically contained within a narrow frame of

analysis involving the comparison of costs with benefits or value, and where a point

value is used as part of a pass/fail rule. In current practice, the consideration of value

often neglects the broader values of infrastructure that may be positive (of recreational,

aesthetic, environmental and community value) or negative (the impacts on local

cultural values). This narrow framing of economic analysis does not support

sustainability and may preclude innovative project solutions and opportunities to

address emerging challenges such as climate change. Integrated water cycle

management (IWCM) presents an example of a sustainable approach to managing

water resources, providing a range of values that are often difficult to fully represent.

Incorporating sustainability in investment decision making for infrastructure projects iii

A mixed methods design approach involving both quantitative and qualitative

research phases was adopted for this research. Using a literature review, a conceptual

model was initially developed for the investment decision-making process. This model

was firstly tested through a quantitative study, the results of which were used to inform

the design of a further qualitative study. The focus of this research was to propose an

optimal system approach to support project selection and decision making for

infrastructure projects within a strong sustainability framework. The interviews with

expert practitioners that were conducted as part of the qualitative study, informed

analysis based on an iterative process of coding into themes using the NVivo software

package.

Using an infrastructure business-model framework, this research proposes a new

model that moves analysis away from point-value assessment, to considerations of

both outcomes (benefits) and outputs (values) This research presents a sustainability

investment logic that considers outcomes in terms of benefits that are measureable

indicators, and outputs in terms of values that may be both qualitative and quantitative.

Benefits assessment for infrastructure investments align with broader policy directions

and should include considerations of benefit for the wider community, beyond the

boundaries of the infrastructure provider. This research challenges the premise that

better analysis should be based on assigning monetary value to a broader array of

economic, environmental and social items within a cost-benefit framework. Cultural

values provide an example of a social dimension that is increasingly being

acknowledged in importance through government policy, but would be highly

contestable if assigned monetary value.

In current practice, the institutional settings also influence how economic

analysis is developed, interpreted and used in decision making. In this research, a

model has been developed that builds on the concept of sustainability investment logic

and broadens the framework to take into account the institutional factors that influence

the rules and norms for the appraisal process. Within this model, participation by

stakeholders, including end-users, informs the identification of values and benefits,

and is integral to the considerations of trade-offs between competing value dimensions.

This research has addressed a single infrastructure sector, the water sector, but

the findings apply across infrastructure sectors, taking account of infrastructure as a

public good.

iv Incorporating sustainability in investment decision making for infrastructure projects

Table of Contents

Keywords ............................................................................................................................. i Abstract ............................................................................................................................... ii Table of Contents ................................................................................................................ iv List of Figures ................................................................................................................... viii List of Tables ....................................................................................................................... x List of Papers from this Thesis ............................................................................................ xi List of Abbreviations ......................................................................................................... xii Statement of Original Authorship ...................................................................................... xiii Acknowledgements ........................................................................................................... xiv

Chapter 1: Introduction ................................................................................... 1

1.1 Background ................................................................................................................ 1 1.2 Context ...................................................................................................................... 6 1.3 Purposes..................................................................................................................... 9 1.4 Significance and Scope ............................................................................................ 10 1.5 Thesis Outline .......................................................................................................... 11

Chapter 2: Literature Review ........................................................................ 13 2.1 Sustainability ........................................................................................................... 13

2.1.1 Background and meaning ............................................................................... 13 2.1.2 Sustainability challenges– a sectoral review .................................................... 17 2.1.3 Sustainability guidance and practical applications ........................................... 19 2.1.4 The role of infrastructure in sustainability value ............................................. 21

2.2 Investment Decision Making .................................................................................... 23 2.2.1 The role of the Business Case ......................................................................... 23 2.2.2 Project Benefits .............................................................................................. 26

2.3 Appraisal Tools ........................................................................................................ 28 2.3.1 Financial Analysis .......................................................................................... 29 2.3.2 Economic Analysis ......................................................................................... 29 2.3.3 Extended (or Advanced) Cost Benefit Analysis .............................................. 31 2.3.4 Multi- Criteria Decision Analysis (MCDA) .................................................... 31 2.3.5 Other .............................................................................................................. 33

2.4 Critiques of Current appraisal models (CBA & MCA) .............................................. 34 2.4.1 CBA ............................................................................................................... 34 2.4.2 MCDA/MCA ................................................................................................. 42

2.5 The role of the private sector .................................................................................... 44 2.6 Participation ............................................................................................................. 45 2.7 Calls for a new approach .......................................................................................... 48

2.7.1 The multiple values of infrastructure .............................................................. 49

Incorporating sustainability in investment decision making for infrastructure projects v

2.7.2 Incorporating sustainability in investment appraisal ........................................ 50 2.7.3 Value Capture and Public Value ..................................................................... 53

2.8 Institutional framework ............................................................................................ 56 2.8.1 Policy Context ................................................................................................ 57 2.8.2 Boundaries ..................................................................................................... 58 2.8.3 Governance and regulation ............................................................................. 60

2.9 The research questions.............................................................................................. 61 2.10 Summary and Implications ....................................................................................... 62

Chapter 3: Theoretical Framework ............................................................... 65 3.1 Introduction .............................................................................................................. 65 3.2 Theoretical Framework- constructs ........................................................................... 66

3.2.1 Rationality and public management/ decision making ..................................... 67 3.2.2 Complexity ..................................................................................................... 69 3.2.3 Complex Adaptive Systems ............................................................................ 70 3.2.4 Rationality, Complexity and Value ................................................................. 71

Chapter 4: Water Management in Australia ................................................. 75

4.1 Introduction .............................................................................................................. 75 4.2 Water Industry in Australia ....................................................................................... 76 4.3 Water Sector Advocacy and Support......................................................................... 81 4.4 Integrated Water Cycle Management ........................................................................ 82 4.5 Summary .................................................................................................................. 85

Chapter 5: Research Design ........................................................................... 87 5.1 Introduction .............................................................................................................. 87 5.2 Methodology and Research Design ........................................................................... 87

5.2.1 Methodology .................................................................................................. 87 5.2.2 Research Design ............................................................................................. 90

5.3 Instruments/ framework ............................................................................................ 92 5.4 Procedure and Timeline ............................................................................................ 93

5.4.1 Initial Quantitative Study (Stage One) ............................................................. 93 5.4.2 Review and Hold Point ................................................................................... 99 5.4.3 Qualitative study (Stage Two)....................................................................... 100

5.5 Ethics ..................................................................................................................... 105 5.6 Conclusion ............................................................................................................. 105

Chapter 6: Results ........................................................................................ 107

6.1 Introduction ............................................................................................................ 107 6.2 Outcomes of initial research stage........................................................................... 107

6.2.1 Outcomes and use of Quantitative Study (Stage One).................................... 115 6.3 Outcomes of Stage Two Qualitative Research (Interviews) ..................................... 117

6.3.1 Participants and process ................................................................................ 117 6.3.2 Interview Responses- First stage of coding ................................................... 122 6.3.3 Second stage coding ..................................................................................... 136 6.3.4 Final stage coding ......................................................................................... 145

6.4 Summary of Results ............................................................................................... 159

vi Incorporating sustainability in investment decision making for infrastructure projects

Chapter 7: A Model for Sustainability Investment Appraisal .................... 161

7.1 Introduction ........................................................................................................... 161 7.2 Synthesis of the two research phases ...................................................................... 162 7.3 Sustainability- a refreshed commitment .................................................................. 166 7.4 Participation ........................................................................................................... 171 7.5 The Role of Benefits and Value- A Sustainability Investment Logic ....................... 176

7.5.1 From infrastructure business models to a sustainability investment logic ....... 176 7.5.2 Benefits ........................................................................................................ 180 7.5.3 Value ........................................................................................................... 183

7.6 A new model for decision making .......................................................................... 195 7.6.1 CBA- an extended approach? ....................................................................... 196 7.6.2 A new model ................................................................................................ 200 7.6.3 Enablers ....................................................................................................... 203 7.6.4 Inputs ........................................................................................................... 211 7.6.5 From Trade-offs to Negotiation and Optimisation ......................................... 216 7.6.6 Decision Making .......................................................................................... 219 7.6.7 Performance assessment and reporting .......................................................... 220 7.6.8 Implementation- the use of pilot projects ...................................................... 223

7.7 Application of Sustainability Investment Logic and Appraisal Model ..................... 224 7.8 The research questions ........................................................................................... 226 7.9 Summary ............................................................................................................... 227

Chapter 8: Conclusions ................................................................................ 230 8.1 Summary of research .............................................................................................. 231 8.2 Implications for practice ......................................................................................... 234 8.3 Implications for theory ........................................................................................... 236 8.4 Limitations of research ........................................................................................... 236 8.5 Recommendations .................................................................................................. 237

8.5.1 Recommendations for further research .......................................................... 237 8.5.2 Recommendations for Industry ..................................................................... 239

Bibliography ....................................................................................................... 240

Appendices .......................................................................................................... 261

Appendix A Key Survey Questionnaire ............................................................................ 261 Appendix B Interview Schedule- Agency Representatives ................................................ 266 Appendix C Interview Schedule- Independents (consultants) ............................................ 268 Appendix D Interview Schedule- Central Agencies .......................................................... 270 Appendix E Key Survey Results ...................................................................................... 272 Appendix F NVivo Tree Map showing coding weight associated with key themes ........... 273 Appendix G Results: Selected responses on approaches to analysis .................................. 274 Appendix H Results: Selected responses on approaches to Decision Making .................... 275 Appendix I Results: Selected responses on definitions of sustainability ............................ 276 Appendix J Explanatory results table: participation .......................................................... 277

Incorporating sustainability in investment decision making for infrastructure projects vii

Appendix K Results: Selected responses on the impacts of boundaries .............................. 282 Appendix L Results: Selected responses on policy and organisation goals ........................ 283 Appendix M Explanatory results table: enablers ............................................................... 284 Appendix N Explanatory results table: inputs ................................................................... 287 Appendix O Explanatory results table: benefit assessment ................................................ 291 Appendix P Explanatory results table: value assessment ................................................... 295 Appendix Q Explanatory results table: trade-offs .............................................................. 300

viii Incorporating sustainability in investment decision making for infrastructure projects

List of Figures

Figure 2.1. Project Management Process Groups from PMBoK (PMI, 2008) ......... 24

Figure 2.2. Assurance Review Process adapted from Australian Government Guidelines (Department of Finance, 2017) ................................................ 26

Figure 2.3. Spectrum of Evaluation Methods (modified from Reidy et al. (2014) ....................................................................................................... 53

Figure 2.4. Conceptual framework for this research ............................................... 64

Figure 3.1. Theoretical Framework ........................................................................ 67

Figure 3.2. CAS framework (Rhodes et al., 2010, p.11) ......................................... 71

Figure 3.3. The evolution of environmental economics (based on Pirgmaier (2017))...................................................................................................... 73

Figure 5.1. Three questions for research design (adapted from Creswell, 2003) ...... 87

Figure 5.2. Summary graphic of Research Design .................................................. 91

Figure 5.3. Selection of interview participants for research .................................. 104

Figure 6.1. Interview participant roles .................................................................. 118

Figure 6.2. The Three Stages of NVivo Coding .................................................... 121

Figure 6.3. Key themes from interviews addressing the Business Case ................. 122

Figure 6.4. Key themes from interviews addressing decision making ................... 126

Figure 6.5. Key themes from interviews addressing sustainability ........................ 129

Figure 6.6. Participation ....................................................................................... 131

Figure 6.7. Boundaries ......................................................................................... 133

Figure 6.8. Enablers ............................................................................................. 136

Figure 6.9. Inputs ................................................................................................. 143

Figure 6.10. Benefits ............................................................................................ 147

Figure 6.11. Value Creation ................................................................................. 149

Figure 6.12. DEFRA’s Total Economic Value Framework (from DEFRA (2007)).................................................................................................... 151

Figure 6.13. Trade-offs ........................................................................................ 156

Figure 6.14. Implementation ................................................................................ 158

Figure 7.1. Aspects of current participatory processes that may influence new approaches to participation in investment decision making ..................... 173

Figure 7.2. Infrastructure business model hierarchy (adapted from Bryson et al., 2014) ................................................................................................ 177

Figure 7.3. Typical elements of ILM (adapted from review of Victorian and Queensland Government guidance) ......................................................... 179

Incorporating sustainability in investment decision making for infrastructure projects ix

Figure 7.4. A Sustainability Investment Logic model ........................................... 180

Figure 7.5. Value Creation- the dimensions of value ............................................. 185

Figure 7.6. A model for Incorporating Sustainability in Investment Decision Making ................................................................................................... 202

Figure 7.7. The role of policy in urban water management in the state of Victoria ................................................................................................... 206

Figure 7.8. Strategic and Policy context of Projects (adapted from Young & Grant (2015)) .......................................................................................... 207

Figure 7.9. Trade-offs and Negotiation ................................................................. 218

Figure 7.10. Performance Assessment Framework for projects ............................. 221

Figure 7.11. Application of Sustainability Investment Logic ................................. 224

x Incorporating sustainability in investment decision making for infrastructure projects

List of Tables

Table 2.1 Valuation techniques commonly adopted in environmental economics ................................................................................................. 38

Table 4.1 A history of water management in Australia from Mackay (2007).......... 77

Table 4.2 Water Service Providers by State in Australia ........................................ 79

Table 4.3. Benefits associated with IWCM or 'green infrastructure ........................ 83

Table 5.1 Three Methods of Analysis using Content Validity Analysis .................. 96

Table 5.2 Guidance for use of modified kappa values in determining item relevance .................................................................................................. 97

Table 5.3 Organisations with membership of the HLCC in WSAA ........................ 99

Table 6.1 Roles of participants in survey ............................................................. 108

Table 6.2 Survey responses reflecting how sustainability is incorporated in current practice ....................................................................................... 109

Table 6.3 Survey responses on analysis techniques that are used in current practice ................................................................................................... 110

Table 6.4 Effectiveness of analysis techniques within a sustainability framework .............................................................................................. 111

Table 6.5 Benefits of a Sustainable approach to decision making ......................... 113

Table 6.6 Barriers to a sustainable approach ......................................................... 114

Table 6.7 Quantitative study outcomes and impacts on second stage of research .................................................................................................. 116

Table 6.8 Interview participant details ................................................................. 119

Table 6.9 Business case guidance referenced in interviews ................................... 125

Table 6.10 Sustainability statements by Australian water utilities ........................ 139

Table 6.11 Selected social aspects and means for valuation (from Hardisty (2010)).................................................................................................... 154

Table 7.1 Comparison of Quantitative and Qualitative results .............................. 165

Table 7.2 Participatory design instruments(source: National Research Council, 2008) ...................................................................................................... 176

Table 7.3 Common valuation techniques .............................................................. 191

Table 7.4 Capability shift for sustainability (adapted from Kemp and Martens (2007)).................................................................................................... 210

Table 7.5 Financing mechanisms for climate change infrastructure in Scotland (from Roelich (2015)) ............................................................................. 214

Table 7.6 Key Considerations for Sustainability Model ........................................ 226

Incorporating sustainability in investment decision making for infrastructure projects xi

List of Papers from this Thesis

Peer Reviewed Conference Papers

Reidy, A., Kumar, A., Kajewski, S. (2014) Sustainability in Infrastructure

Investment- Building the Business Case. In Engineers Australia Convention 2014

(Practical responses to Climate Change), 25-27 November 2014, Melbourne,

Australia.

Reidy, A., Kumar, A., Kajewski, S, (2015) Sustainability in Road Projects-

Building the Business Case. In AAPA 16th International Flexible Pavements

Conference 2015, 13-16 October 2015, Gold Coast, Australia.

Reidy, A., Kumar, A., Kajewski, S. (2016) Front End Decision Making for

Infrastructure Projects- A Sustainability Framework. In 8th International

Conference on Maintenance and Rehabilitation of Pavements (MAIREPAV8), 27–

29 July 2016, Singapore.

Reidy, A., Kumar, A., Kajewski, S, (2016) Sustainability and decision making in

infrastructure projects- the institutional settings. In Sustainability in Public Works

Conference, 24 – 26 August 2016, Melbourne, Australia.

Reidy, A., Kumar, A., Kajewski, S., Lamari, F. (2018) From point value to

sustainability investment logic- infrastructure appraisal and the challenges of

climate change. In Climate Adaptation 2018 Conference Papers, NCCARF,

Melbourne.

Other

Reidy, A., Kumar, A., Kajewski, S, (2016) Front end decision making for water

projects. Poster presentation In OzWater ‘16, 10- 12 May 2016, Melbourne,

Australia.

Reidy, A., Kumar, A., Kajewski, S., Lamari, F. (2018) Value and valuation- why

public infrastructure requires a business model approach for sustainability

appraisal. In Sustainability in Public Works Conference, 14-15 May 2018, Sydney,

Australia.

xii Incorporating sustainability in investment decision making for infrastructure projects

List of Abbreviations

BCR Benefit Cost Ratio

BRM Benefits Realisation Management

CBA Cost Benefit Analysis (also referred to as BCA or Benefit Cost

Analysis)

GRI Global Reporting Initiative

ILM Investment Logic Management/ Map

ISCA Infrastructure Sustainability Council of Australia

IWCM Integrated Urban Water Management

MBI Market Based Instruments

MCA Multi-Criteria Analysis

MCDA Multi- Criteria Decision Analysis

NPV Net Present Value

PPP Public Private Partnership

ROA Real Options Analysis

ROI Return on Investment

SDGs Sustainable Development Goals

VfM Value for Money

WTP Willingness to Pay

WTA Willingness to Accept

Incorporating sustainability in investment decision making for infrastructure projects xiii

Statement of Original Authorship

The work contained in this thesis has not been previously submitted to meet

requirements for an award at this or any other higher education institution. To the best

of my knowledge and belief, the thesis contains no material previously published or

written by another person except where due reference is made.

Signature:

Date: 12 June 2018

xiv Incorporating sustainability in investment decision making for infrastructure projects

Acknowledgements

This research was initiated through a number of conversations with Prof Arun

Kumar, who agreed to be my supervisor through my PhD candidature. I would like to

acknowledge Prof Kumar’s support and guidance throughout my PhD journey. His

sage advice has helped keep me to continue in the face of uncertainty. I would also

like to acknowledge and thank Prof Stephen Kajewski for his support as a supervisor

throughout my research, together with Dr. Fiona Lamari who has stepped in more

recently as a supervisor taking over the role of Assoc Prof Karen Manley.

Professional editor, Diane Kolomeitz, provided copyediting and proofreading

services, according to the guidelines laid out in the university-endorsed national

‘Guidelines for editing research theses’.

Incorporating sustainability in investment decision making for infrastructure projects 1

Chapter 1: Introduction

In Australia, public infrastructure plays a critical role in shaping urban

environments and supporting thriving communities. From nation-defining initiatives

such as the Snowy Mountains Scheme in post-war Australia, to the water fountains

placed in the local park, decisions on infrastructure affect communities every day. How

effective are these decisions in meeting the needs of communities for which they are

provided? Are the commitments to sustainability by infrastructure providers reflected

in decision making? Can sustainability provide a framework to guide better decision

making?

This chapter introduces the thesis topic and provides background and context to

the research problem. In parallel with the academic discourse, a broader discussion is

emerging in the public domain on the relevance and application of economic models

that form the basis of major decisions. These broader questions are canvassed, prior to

setting out the overall structure of this thesis.

1.1 BACKGROUND

As the settlement of Brisbane emerged, grand civic buildings such as Parliament

House, the Land Administration Building and the Treasury Building emerged on a

planned grid of streets, marking confidence in the future prosperity of the new

township. A triangular footprint for the township was bounded by its eponymous river,

a source of transport, trade and severe floods since colonisation and settlement. By the

1960s, a regular outing for Brisbane residents might be a trip into the city centre using

the public tramway system and a picnic lunch on the river slopes at North Quay. Now,

the trams are long gone, and the grassy slopes of the river bank have been overtaken

by the brutalist modernism design of Brisbane’s Riverside Expressway, conceived by

American consultants Wilbur Smith and Associates. The expressway, and the removal

of trams, formed part of the Brisbane Transportation Study that sought to transform

Brisbane to a modern city characterised through efficient movement of motor vehicles.

In implementing the Brisbane Transportation Study, the decisions of the Queensland

Department of Main Roads, supported by Brisbane City Council, had a significant

influence on land planning, landscape design and urban amenity of Brisbane, but these

2 Incorporating sustainability in investment decision making for infrastructure projects

factors were subordinate to a ‘system of automobility’ (Butler, 2008, p.473). The

expressway marked the start of city development that turned its back to the river. The

decision to proceed with the expressway gave little regard to the concerns voiced by

members of the Brisbane Freeway Protest and Compensation Committee, representing

residents that were either affected or dispossessed by the works, and no regard to the

views of the local Turrbal people with their spiritual connections to the river over

centuries.

Moving forward to the current era, investment decisions are largely based on a

prescribed, rational approach built upon the findings of a project Business Case. For

significant projects of national importance, the business case is submitted to

Infrastructure Australia for review and approval. Such projects have a high level of

public interest, and the outcomes of decisions are widely reported in the local media.

Using the example of the business case proposed by the Queensland Government for

the Brisbane Cross Rail project (a north-south rail connection across the Brisbane

River), media reports were focused on the Benefit Cost Ratio (BCR) derived in

economic analysis. Whilst the Queensland Government’s assessment suggested a BCR

that was greater than one, Infrastructure Australia rejected the project on the basis of

its own analysis whereby costs were greater than benefits (Marszalek, 2017).

It is argued that project decision-making has evolved from the top-down

processes of the 1960s, but has not necessarily improved. At a political level, recent

projects such as the East West Link in Melbourne have been aborted with arguments

around the deficiencies in analyses associated with the value of benefits relative to

costs. For smaller scale, local projects, similar problems emerge in representing the

benefits in relation to project costs. The costs incurred through these decisions are

often significant, sometimes with millions of dollars invested in planning, design, site

works and contractual commitments, and may impact on the ability of governments to

allocate funds to competing community priorities.

Renewed international commitments to sustainable development, through the

UN Sustainable Development Goals, provide an additional frame to guide decision

making. As infrastructure agencies seek new solutions to emerging problems around

climate change, resource depletion and social and societal priorities, prescribed

analysis techniques often fail to justify investments in new and innovative approaches

to infrastructure solutions. Whilst the difficulties in justifying sustainable


infrastructure investments are documented across infrastructure sectors, this research

uses the example of the water sector taking account of the specific structural and

legislative framework that applies to the sector. Whether addressing water

management challenges in an integrated and systematic way, or looking at new models

for service provision, the rules and processes for business case development often act

as barriers to opportunities that deliver sustainable and long term community benefits.

In this research, a sustainability framework refers to the complex inter-relationships

between the social, cultural, ecological and economic dimensions that should be

considered for infrastructure that supports the urbanisation of regions.

In translating sustainable development objectives to a practical urban

development context, industry membership organisations such as the Green Building

Council of Australia (GBCA) and, more recently, the Infrastructure Council of

Australia (ISCA) have been established. These organisations respond to the need for

uniformity in the approach and understanding of sustainability and seek to improve

sustainability performance with a focus on guiding planning, design and operation of

building and infrastructure assets. The World Green Building Council concluded that

there is a strong imperative for developing ‘green buildings’ in view of considerations

of demonstrated benefits that include increased asset value, lower operating costs, and

improved workplace productivity and health (World Green Building Council, 2013).

Property markets respond to commercial forces and increasingly, property developers

are recognising ‘value’ in terms of the returns on investment. Hence, the incorporation

of sustainability features is now widely adopted across the building sector.

On the other hand, the public good aspect of infrastructure works and the long

life-spans of public assets, mean that a financial metric of ‘return on investment’ does

not fully represent the multiple values of infrastructure that may change over time. As

an example, a water reservoir may be the primary source of water supply for a local

community and the business case for such an initiative may have been initially valued

on this basis. But, over time, the water body may also be used for recreational uses

such as boating or rowing, the surrounding areas may be used as community parklands,

local fauna and flora may be regenerated in the surrounding catchment, and cultural

artefacts may be identified and interpreted to enable greater awareness of local

heritage. Furthermore, infrastructure is traditionally viewed from a single-sector

approach, often ignoring the wider interdependencies within infrastructure networks.


Taking the example of the water reservoir and dam, the works also include potential

relationships with energy generation and distribution networks, flood and drainage

infrastructure, and pipeline corridors that may potentially support other linear

networks. In contrast, poor decision making may result in the value of infrastructure

declining over time, and the impacts being viewed as negative. Projects such as the

Elwha Ecosystem Restoration project in the state of Washington, USA, involved the

removal of a dam wall in 2012 to restore river flows, rehabilitate river beds, and once

again allow the movement of migratory salmon within the watershed. There are

growing calls to remove the much larger Glen Canyon Dam that was completed in

1963, holding back flows on the Colorado River with subsequent impacts on

ecosystems and fisheries.

Concepts of ‘green infrastructure’ and ‘green transport’ are pursued as

alternative solutions to infrastructure design, to address perceived benefits around

resilience, liveability, environmental management and health and well-being. Often

these initiatives represent non-traditional approaches to business-as-usual approaches.

An example that is explored in more depth in this research is the case of integrated

water cycle management (IWCM), where stormwater and waste water are viewed as a

resource for recovery and reuse, thereby challenging the traditional solution of

concrete pipes and centralised systems of treatment and disposal. As a public good, it

can be difficult to ascribe financial or economic value around the wider benefits of

these new approaches, and as such, the business case may not be able to present a

favourable recommendation for such initiatives to proceed.

Various tools have been developed to guide the incorporation of sustainability

into the design, procurement and commissioning phases of projects. However, there

remains a gap in an acceptable industry approach to incorporating sustainability into

the initial business case for projects. At present, much of the guidance for the Business

Need/ Business Case phases of project development focuses on financial and economic

analysis of options, with limited, if any, consideration of sustainability considerations.

This research seeks to understand how organisations with strong sustainability

aspirations address sustainability in decision making.

It is difficult to foresee how infrastructure assets will perform and adapt into the

future, to meet challenges that include climate change and resource depletion; changes

in the global economy and energy prices; an increasingly complex regulatory


environment and community; and social issues (Marlow & Humphries, 2009).

Infrastructure has unique characteristics including complex and multiple values with

direct economic returns, but also wider environmental and social values and impacts.

And yet, decision making in the public sector favours formal rationality, whereby

financial or economic analysis forms the basis of decision rules. Within this paradigm,

market mechanisms form the benchmark for analysis where benefits that can be

attributable to elements of the infrastructure service are measured and monetised.

The uncertainty and difficulties in front-end decision making has been subject to

criticism across various sectors. In the transport sector, the Victorian Auditor

General’s Office considered that the decision-making process around the now

abandoned East West Link project was based on ‘flawed advice’, whereby ‘the likely

net benefits of the project were not sufficiently demonstrated and the failure to

properly resolve project risks before entering contracts exposed the state to additional

financial risk’ (Victorian Auditor General’s Office, 2015, p.vii). In the water sector,

the Australian Academy of Technological Sciences and Engineering (ATSE)

identified a need for new governance models to better manage urban stormwater in

Australia and proposed more ‘robust’ appraisal models that acknowledge the

complexity of integrated water management systems. According to ATSE, the ‘present

models are too narrow in scope and cannot assess the true value of investments made

into green stormwater systems that provide high amenity value to our cities while

delivering on basic water services’ (Australian Academy of Technological Sciences

and Engineering (ATSE), 2015, p. 4).

With over thirty years of professional experience as an engineer and project

manager in infrastructure development, covering areas of coastal works, transport,

water supply and civil works, my early understanding of sustainability was grounded

in incorporating ‘triple bottom line’ assessments in major project proposals for local

government. My subsequent professional work and training has had a strong emphasis

and inclination in ‘front end’ project management processes based around the former

UK Office of Government and Commerce (OGC)’s proprietary systems for better

managing projects, including Managing Successful Programmes (MSP) and the

Gateway Review process, together with the Project Management Institute’s Project

Management Book of Knowledge (PMBoK). Through my professional work, I have

observed the gaps in knowledge and capability in applying sustainability principles to


business case development. Whilst the topic and content of this research is based on

sustainability, an inter-related question is how business cases for infrastructure

projects more generally can be more effective and appropriate.

1.2 CONTEXT

At the start of this research in 2014, an underlying question was whether

sustainability as a word was still relevant to infrastructure providers. In some sectors,

anecdotal comments suggested that sustainability groups within organisations were

being disbanded. This research reinforces the importance of sustainability based on a

broader understanding that captures systems-thinking and integrated analysis across

the social, environmental and economic domains. The importance and relevance of

sustainability is based on its ability to better frame responses to complex problems

such as climate change, resource depletion, population growth and social changes.

Public sector infrastructure providers at national, state and local levels continue to

commit to sustainability principles. In the private sector, the ownership and operation

of infrastructure assets is also a growing part of investment portfolios. A sustainable

investment approach, that takes account of environmental, social and governance

factors, is becoming a business imperative for investment banks, as the Global

Sustainable Investment Alliance (GSIA) stated in its 2016 report:

Responsible investment assets managed by asset managers, asset owners,

banks and advisors in Australia and New Zealand grew substantially, both at

retail levels and institutional levels, across all responsible investment

strategies. In both countries combined, responsible investment assets have

grown from 2014 to 2016 to reach $515.7 billion, and to a point where in

Australia, sustainable investments now account for 50 percent of all

professionally managed assets. (Global Sustainable Invetment Alliance, 2016,

p. 4).

For this research, the term ‘decision-making’ refers to considerations that are

typically presented in Business Need/ Business Case stages for a given project

initiative, whereby various options for delivery and operations are analysed to address

an identified problem and a proposed solution is defined. For a public transport

initiative, this may involve the consideration of options such as improved bus services,

light rail services and heavy rail options. For water supply projects, options may

include traditional reticulated/‘piped’ potable water supply options (‘centralised’


solutions) versus water harvesting and treatment from local catchments

(‘decentralised’ solutions) or policy initiatives based on demand management. Such

options would be expected to have different benefits, disbenefits and outcomes, when

assessed within a sustainability framework.

Building on the Australian Government’s assurance processes, various state

governments in Australia have developed guidance for investment decision making.

Victoria’s Investment Management Standard (IMS) is considered ‘best practice’ for

managing major projects (Young et al., 2012, p.891). The literature review highlights

the guidance and rules supporting business case development. However, in practice,

approaches to decision making adopted by infrastructure agencies varies based on a

range of institutional factors. These include organisational boundaries, legislative

requirements and governance arrangements. This research also refers to international

practice, as many of the issues and potential solutions are topical across the world. Of

note, the UK Government’s “Green Book” published by HM Treasury, providing

guidance on appraising proposals for public sector works in the UK, remains a seminal

reference for practice in Australia. In addition, the work by two research facilities in

the United Kingdom is drawn upon, namely the IBUILD Research Centre based at the

University of Newcastle (UK) and International Centre for Infrastructure Futures

(ICIF) (University of Bristol/ UCL). Both research facilities have been established as

part of the National Infrastructure Plan to inform public debate on the future of

infrastructure in the UK.

Decision making typically involves numerous agents performing a variety of

roles ranging from project promoter, analyst, central agency reviewer, stakeholder,

user, advocate, board member and political representative, and each perspective

provides a different viewpoint and skill-set in the development of the final adopted

solution. More recently, there have been criticisms in the media of political influence

in the decision-making processes. In response, governments at both national and state

levels have established specialist infrastructure agencies (Building Queensland,

Infrastructure NSW, Infrastructure Victoria amongst others) that are charged with

providing independent advice on infrastructure priorities within each state.

The complexity of investment decision making, for which the business case

provides supporting analysis, has been recognised in various reports, studies and

guidance material. Traditional approaches to organisational management and practice


favour formal rationality and seek to simplify the presentation and analysis of facts

and data, often reducing problems to a linear model within boundaries that may be

defined by jurisdictional boundaries. Market-based valuation techniques, such as Cost

Benefit Analysis (CBA), are commonly prescribed to form the basis of decision

making. CBA draws on elements of environmental economics and applies standard

economic thinking to monetise both costs and benefits that can be attributed a market

value. In 2014, a report by the Productivity Commission (the Australian Government’s

peak advisory body on economic, social and environmental policy and regulatory

matters) confirmed a preference for infrastructure agencies to adopt ‘properly made’

CBA as part of investment analysis, despite the shortcomings of CBA outlined in the

report.

On the other hand, a range of critiques recognise that complex problems require

a multi-faceted approach to assessment that broadens assessment beyond using

financial analysis as a ‘Go/No Go’ decision rule. One analogy claims that complex

policy problems require the use of an appropriate set of tools from a toolbox, rather

than using a single tool to inform decision making (Walker, 2000). In line with this

thinking, an evolution in approaches to economic analysis is in development. Starting

with environmental economics, ecological economics has emerged, and now new

models are proposed, which have been described by various authors as socio-

ecological economics or complexity economics. These new models seek to take a

trans-disciplinary view within analysis that recognises there are factors to be

considered that are both within and beyond the market, and that these need to come

together in an integrated manner. These new approaches align with sustainability

considerations in relation to intergenerational equity and systems thinking.

Given the historical failures of financial markets, most recently observed in the

Global Financial Crisis of August 2007, some critics question the current public

management framework that relies on abstract versions of competition to emulate

market mechanisms in government. The social licence of government requires the

consideration of more complex social relationships across society, rather than

consideration of point-value economic transactions (Bowman et al., 2014).

The emerging consideration of private sector involvement in the delivery and

operation of infrastructure services remains relevant based on considerations of

perceived efficiency gains, performance improvements and capacity for innovation.


Regardless of whether the public or private sectors are responsible for delivery and

ownership, infrastructure assets are significant long-term investments that are

provided for community good, and therefore government continues to maintain

regulatory oversight in the provision of these services.

1.3 PURPOSES

The aim of this research is to understand how the sustainability aspirations of

infrastructure providers are translated into the decision-making processes in the pre-

investment stages of the project life cycle. Furthermore, the research seeks to develop

a model for applying a sustainability framework to decision making.

Formal rationality continues to guide investment decision making that is subject

to review by central treasuries and economic regulators, both in Australia and

internationally. As such, alternative project solutions that present positive outcomes in

terms of wider community and environmental benefits over time may be difficult to

justify within standard economic models. Current practice presents a challenge when

new technologies or approaches, such as green infrastructure or integrated water

management, are proposed and the full range of project benefits cannot be fully

identified, quantified or accepted. Guidance for investment decision-making may

support the inclusion of certain sustainability initiatives, but requirements that

emphasise a need for financial/economic analysis limit the ability to apply an

integrated sustainable approach. As a result, the following problems have been

identified:

• Whilst investment decision-making is complex with long term impacts and

a range of stakeholders and political inputs, regulatory guidance shows a

preference to apply economic analysis to inform decision making based on

formal rationality models;

• Within economic models, the environmental and social dimensions of

sustainability are not well understood and attempts to monetise these

elements do not fully capture all costs and benefits for infrastructure

projects; and

• Economic models are built upon assumptions and approximations that are

critical to analysis outcomes but these often discount core community values

and cannot address deep and complex problems.


This research uses an empirical approach to assess business case practice within

the water sector, where sustainability is a key driver for organisational activities.

Underpinning this research are the following objectives:

• To understand industry responses and approaches to incorporating

sustainability in investment decision making;

• To understand the wider institutional factors that influence decision making

and that may impact on sustainability outcomes;

• To understand how value may be most effectively assessed within a

sustainability framework.

With the adoption of the United Nations Sustainable Development Goals in

2015, government agencies, businesses and the community all have a role to play in

advancing sustainability in their daily activities. As such, infrastructure agencies

typically adopt sustainability commitments as part of their corporate plans and

strategies. To date, much of the focus on sustainability relates to the sustainability

initiatives that may be applied to pre-defined project solutions resulting from a

business case. There is a need to understand how sustainability may apply to the

decision making that forms part of business case development and the shaping of a

project solution. In an institutional setting, decision making may be complex and

involve a range of actors from across the infrastructure system. Hence, the following

two questions underpin this research:

(1) Do corporate sustainability goals stated by infrastructure agencies translate to

project level decision-making in the pre-investment stage for infrastructure

projects?

(2) What is an optimal system approach to support project selection and decision

making for infrastructure projects within a strong sustainability framework?

1.4 SIGNIFICANCE AND SCOPE

This research contributes to knowledge through linking sustainability with

investment decision making. Whilst Cost Benefit Analysis (CBA) has been the default

assessment tool that has been mandated for investment decision making over several


decades, there have been on-going questions regarding its legitimacy and

thoroughness, particularly in assessing the social and environmental impacts of major

infrastructure projects. At the same time, the level of complexity in decision making

has increased, whereby issues such as climate change impacts, resource depletion and

local community concerns add to the mix of considerations in developing project

solutions. Sustainability provides a framework to deal with such complexity. Whilst

sustainability initiatives have been proposed and considered in investment decision

making, a sustainable approach is not fully understood and the development of a

framework and guidelines would assist this process.

1.5 THESIS OUTLINE

This research builds on studies endorsing a sustainable approach to support

optimal investment decisions for public sector infrastructure projects. The research

seeks to understand how sustainability may most effectively be incorporated into

decision making and the institutional factors that continue to impede alternative

approaches to CBA. The literature review (Chapter 2) considers the broader

sustainability aspirations of public sector infrastructure providers and the translation

of these aspirations to project-level decision making at the initial planning/ business

case stage. The literature review has been undertaken from an international

perspective, whereby guidelines for business case development universally propose

the use of cost benefit analysis and numerous commentaries either endorse or question

its application. The research has focused on the application of theory to practice within

an Australian context, taking account of the regulatory environment at national, state

and local levels for infrastructure providers. The literature review presents a

conceptual framework, forming the basis of the subsequent research design and

empirical research.

The theoretical framework for this research (Chapter 3) looks at the concept of

public value based on the linkages between aspects of rational/public choice theory

and complexity theory. Given the influence of economic theory within the decision-

making process, Chapter 3 also briefly discusses the role of economics and the

evolution in thinking on market-based mechanisms specifically for public goods such

as infrastructure.


This research has centred on the water sector given the institutional, structural

and operational distinctions that define the sector. Chapter 4 provides a brief

description of the water industry within Australia. Chapter 4 also provides an outline

of a key sustainability challenge for the water industry around integrated water

resource management, noting submissions and findings from the 2015 Senate Inquiry

into Stormwater Management in Australia. Whilst a single infrastructure sector has

been studied, a sustainable approach should address the interconnections and

interdependencies that emerge between sectors such as water/ transport, energy/ water,

and water/ waste.

Chapter 5 describes the research design using an integrated inductive/ deductive

approach (also referred to as a hypothetico-deductive approach) in order to progress

from an abstract logical relationship toward theory based on concrete empirical

evidence. A mixed methods approach was adopted to address the two research

questions, whereby quantitative approaches are suited to the first question, and

qualitative approaches are more applicable to the second research question.

The results of each stage of the research are provided in Chapter 6. Stage One

involved a survey distributed to sustainability professionals in the water sector, with

results subject to Content Validity analysis. Stage Two interviews were analysed,

through a staged coding process using NVivo software.

Chapter 7 provides a detailed analysis of the research results, including a further

integration of literature and theory within the concepts that emerged through both

interviews and the survey. A model is presented for the incorporation of sustainability

in investment decision making.

Chapter 8 provides a summary and concluding statements and Chapter 9

provides recommendations for further research.


Chapter 2: Literature Review

2.1 SUSTAINABILITY

2.1.1 Background and meaning

The concept of sustainability emerged in 1972 with both the publication of the

book Limits to Growth by the Club of Rome and the United Nations Conference on

Human Development in Stockholm, however the term emerged in 1980 with the

publication of World Conservation Strategy: Living Resource Conservation for

Sustainable Development (Sachs, 2012). More formal understandings of sustainability

developed following the release of Our Common Future, or the Brundtland Report, in

1987 whereby a commitment to sustainable development was defined at meeting ‘the

needs of the present generation without compromising the ability of future generations

to meet their own needs’ (World Commission on Environment and Development,

1987). The Brundtland Report sought to respond to emerging global issues such as

poverty, resource depletion, climate change scenarios and considerations of inter-

generational equity. The Future We Want, the outcome document from the United

Nations Conference on Sustainable Development held in Rio de Janeiro, Brazil in 2012

(also known as Rio+20), promoted the need to achieve sustainable development

through ‘economic, social and human development while facilitating ecosystem

conservation, regeneration and restoration and resilience in the face of new and

emerging challenges’ (United Nations General Assembly, 2012, p. 2). A key theme of

Rio+20 was the consideration of how to build a green economy, with the outcome

report reinforcing ‘the importance of the evaluation of the range of social,

environmental and economic factors… and their integration into decision making’

(United Nations General Assembly, 2012, p. 12). The challenge of achieving

sustainable development requires concerted policy efforts and direction at the

international level, whilst translating these to meaningful outcomes at the local

community level.

As evidence of changes to global environmental conditions continues to be

gathered, reference to a new geological epoch in Earth’s history- the Anthropocene-

has been informally adopted within the research community. The term Anthropocene

is based on an understanding that human activity has influenced an exit from the


Holocene age, and that human activity has the capacity to influence the global

environment (Steffen et al., 2011). A new definition of sustainable development has

emerged in the Anthropocene as ‘development that meets the needs of the present

while safeguarding Earth’s life-support system, on which the welfare of current and

future generations depends’ (Griggs et al., 2013, p. 306). In response to the problems

emerging from the Anthropocene Age, a planetary boundaries approach seeks to return

the earth’s system to that of the Holocene age. A planetary boundaries approach

considers the earth as a single integrated system that requires a ‘safe operating space’

for nine processes identified by Rockström et al. (2009) as:

• Climate change;

• Biodiversity loss;

• Nitrogen cycle;

• Phosphorous cycle;

• Stratospheric Ozone depletion;

• Ocean acidification;

• Global freshwater use;

• Change in land use;

• Atmospheric aerosol loading; and

• Chemical pollution.

With understandings of the Anthropocene becoming more formalised, sustainability

provides a framework to respond to the need to the challenges of addressing planetary

boundaries.

Sustainability continues to be a focus of governments across the world as part of

on-going dialogue between United Nations member states. In parallel with

considerations of planetary boundaries, a growing list of companies across the world

have committed to the United Nations Global Compact, forming the world’s largest

corporate sustainability initiative. The UN Global Compact requires companies to

commit to ten universal sustainability principles, together with supporting the UN

Sustainable Development Goals (SDGs). Introduced in 2015 when the 194 nations

constituting the UN General Assembly adopted the 2030 Agenda for Sustainable


Development, the UN SDGs present a refreshed focus to move the world on a

sustainable trajectory (Sachs, 2012). The 17 SDGs aim to address poverty, protect the

environment and create opportunities for all through promoting sustainable, inclusive

and equitable growth, whilst also tackling climate change. The global goals set a

framework at global, national and local levels for sustainability to remain valid into

the future and that sustainability remains a key consideration in the public arena. The

international treaties committing to sustainable development continue to reflect on

government policy in Australia, and world-wide.

In replacing the previously adopted Millennium Development Goals (MDGs),

the SDGs provide a network of goals and targets that provide a basis for moving from

siloed thinking on sustainability to integrated thinking using a systems approach (Hall

et al., 2016). The SDGs aim to provide an integrated approach across sectors in

developing policies, strategies and guidance, addressing a shortcoming in the previous

MDGs (Le Blanc, 2015). In addition, sustainability efforts need to shift from the

advancement of developing nations (MDGs), to all nations. The SDGs provide an

opportunity to re-frame sustainability with a stronger focus on the social systems that

are required to underpin sustainable development.

The SDGs provide an integrated framework that reflects the interdependence of

the economic, social, and ecological domains of sustainability and the complexity in

managing these domains in a systematic way (Haas et al., 2017). The SDGs also

present the opportunity for governance systems to respond through both goal setting

at an aspirational level, and rule making that provides the behavioural prescriptions to

allow goals to be achieved (Young, 2017). Commitments by infrastructure providers

to the SDGs demonstrate the renewed focus on sustainability and its role in addressing

global problems. The challenge for infrastructure providers is to translate these

commitments to project-level decision making.

The related concept of sustainability, however, has numerous meanings1. Over

time, understandings of sustainability have been adapted to a range of perspectives and

frames, hence considerations of environmental sustainability, business sustainability,

1 The University of Reading ECIFM notes the difficulties in defining the term ‘sustainability’ whereby Wilson (1992) describes the term as ‘a fragile theoretical construct’. On the University of Reading’s website, ten definitions for sustainability are provided based on work by Brundtland, Harwood, Pearce, Daly, Holgate, Conway & Barbier and others see http://www.ecifm.rdg.ac.uk/definitions.htm


sustainable growth, social sustainability and various other extensions. According to

Adams (2006, p.3), the concept of sustainability ‘is holistic, attractive, elastic but

imprecise’. In discussing the SDGs, the discourse around sustainability often provides

a narrow framing of the ‘trinity’ of interlinking aspects comprising economic, social

and environmental (Gupta & Vegelin, 2016, p. 435). Sustainable development is more

often considered in terms of dualities including considerations of ‘green economy’,

‘green society’ or ‘inclusive growth’. Interpretations of sustainability and sustainable

development are based on varying world views and context. These range from weak

sustainability, where values are strongly anthropocentric and technocentric, to strong

sustainability, with a focus on community values whilst recognising ecological

modernisation (Huckle & Martin, 2001; Santillo, 2007).

When applied to decision making, sustainability assessment aligns with concepts

of ‘Triple Bottom Line’, ‘Integrated Assessment’, and variations of these based on a

holistic assessment of economic, social and environmental dimensions, where the

boundaries between these dimensions are often ‘fuzzy’ (O’Connor, 2006, p.288).

Sustainability assessment has the potential to go beyond Triple Bottom Line or

integrated assessment when fully exploring a spectrum of ‘comprehensiveness’,

‘strategicness’ and ‘integratedness’ (Hacking & Guthrie, 2008, p. 75). Sustainability

assessment should incorporate a temporal scale, in thinking that considers

consequences of actions for future generations, underpinned by principles of ethical

reasoning that focus on systemic impacts. Sustainability provides the opportunity to

incorporate considerations of resilience, taking account of the impacts of climate

change and human disturbance on complex systems and the need for adaptation (Xu

& Marinova, 2013). In the face of new and emerging challenges centred on resource

scarcity and depletion, sustainability provides an operating paradigm that allows

infrastructure providers to respond to complexity and uncertainty (Marlow &

Humphries, 2009).

The ambiguity of sustainability, with no single agreed meaning, has resulted in

the terms sustainability and sustainable development being used interchangeably, and

the concept being exploited to make it compatible with dominant political frameworks,

more recently aligned with a world view that relies on reductionist assessments and

the use of market mechanisms as the basis to value outcomes (Paiva Duarte, 2015;

Kambites, 2014).


2.1.2 Sustainability challenges– a sectoral review

Public infrastructure plays a crucial role in transitioning to a more sustainable

society, however the existing business models for infrastructure present challenges to

achieving sustainability aspirations (Loorbachet al., 2010). Significant transitions are

required in order to address key sustainability issues including climate change, impacts

to biodiversity and resource depletion, but also to unlock the inherent value that

infrastructure contributes to the welfare of society. Infrastructure serves as a complex

‘system of systems’ with cross-sectoral interdependencies and multiple values that

may change over time (Rosenberg et al., 2014, p.3).

Sustainability considerations in investment decision-making respond to various

drivers and challenges faced by each industry sector. With leadership and direction

provided by membership associations (Engineers Australia, Consult Australia, Water

Service Association of Australia), government departments and industry leaders, best

practice responses are being pursued through ongoing research, advocacy and

knowledge sharing within various fields of practice. Across all sectors, a common

theme is the need to consider the full range of project options within the initial planning

phase, including ‘do nothing’, ‘non-infrastructure’ solutions (policy interventions such

as demand management), ‘green infrastructure’ solutions, and ‘hard’ engineered

responses, and to analyse these in a rigorous way that encompasses sustainability

principles.

In the energy sector, sustainable outcomes require the consideration of a wider

array of supply side solutions including the use of renewable technologies, together

with demand-side considerations. The current institutional settings that prioritise short

term efficiencies in solutions to energy provision come at the expense of longer term

thinking that takes account of the complex social interactions and impacts of energy

networks, together with the possibilities that innovations in technology may achieve

(Bolton & Foxon, 2015).

In the transport sector, the most pressing sustainability issues are resource

depletion and air pollution, and these risks are often ignored in conventional planning

(Litman & Burwell, 2006). Other transport impacts include congestion, accident

damages, facility costs, mobility impacts, human health impacts, community

interactions, mobility, aesthetics, habitat loss, water pollution and hydrological

impacts. To address these impacts, a more effective decision-making process should


involve comprehensive analysis of impacts, the consideration of a broader range of

solutions, and greater involvement from the public to accurately reflect community

values (Bratzel, 1999). Solutions proffered include a full range of technical solutions,

demand management, economic reform (e.g. congestion charging), alternative modes

of transport and land use/ community design changes. In a UK context, Spackman

(2013) outlined a number of investment analysis techniques and favoured the

Appraisal Summary Table (AST) that assesses projects against criteria that align with

wider organisational goals. Whilst developed by the Department for Transport in the

United Kingdom for the transport sector as an alternative to the commonly used CBA,

Spackman noted that it is now being used to assess coastal and flood initiatives

(Spackman, 2013).

In the coastal sector, challenges arise from inundation and erosion due to sea

level rise and changing wind and wave patterns. Traditional responses to these

problems have focused on ‘hard’ engineered solutions based on sea walls, groynes and

breakwater protection. Alternative responses are emerging in academic discourse,

ranging from a retreat/ do nothing option (Niven & Bardsley, 2013) to the use of

coastal reefs as coastal protection schemes (Christie & Colman, 2006). In seeking to

assess solutions to changes to coastlines emanating from sea level rise, storms and sea

surges, the use of resource valuations and the monetisation of ecosystem services are

commonly included in evaluations, but these have provided only a partial analysis of

the potential impacts of climate change stresses (Turner et al., 1996). With coastal

policy including the concept of Integrated Coastal Zone Management (ICZM), the use

of Social Impact Assessment in decision making is advocated, taking account of sense-

of-place and considerations of cumulative impacts, social carrying capacity, resilience

and vulnerability (Vanclay, 2012).

In the water sector, transitioning to sustainable water management needs to take

account of the wider value of water beyond economic value and utility pricing, and

should include consideration of ecological value in sustaining ecosystems and social

functions including cultural values (Brugge & Rotmans, 2007). In response to

changing rainfall patterns leading to both water shortages associated with drought, and

subsequent flood conditions with more intense rainfall, the concept of Integrated

Urban Water Management (IWCM) has been widely embraced in the water sector,

resulting in identifying opportunities to harness, store and re-use rainwater runoff. As


a result, water supply authorities and municipal authorities are increasingly working

together to harness stormwater that was traditionally managed as ‘runoff’, and other

water sources treated as ‘waste’. A key issue for decision making is the assessment of

traditional ‘hard’ grey infrastructure (often with lower capital costs) against new (and

often untested) ‘green infrastructure’ alternatives. In Australia, there are calls for a

‘commonly agreed, robust assessment tool or framework’ that may support the

evaluation of IWCM options within a sustainability framework (Mitchell, 2006). A

range of responses have been proposed (Schulz, Short, & Peters, 2012), however an

Australian Government Senate Enquiry in 2015 highlighted on-going issues in being

able to justify alternative solutions to infrastructure problems through standard

evaluation methods2. Further work is needed to build capacity to allow greater

participation of the community in decision making for sustainable water management

(Brown & Farrelly, 2009).

For other sectors of economic infrastructure, initiatives such as green ports

(Abood, 2007), green airports (Shen et al., 2010), and the consideration of renewable

or passive sources for energy supply and heating (Hannon et al., 2013; Masini &

Menichetti, 2012; Busch et al., 2017), have been proposed. Each of these sectors is

subject to unique planning and regulatory arrangements, however the principles

discussed in this paper are applicable to all infrastructure sectors.

2.1.3 Sustainability guidance and practical applications

Sustainability considerations are increasingly being incorporated into the design,

construction and operation phases of project lifecycle. Various rating tools have been

developed for use in Australia, New Zealand, United Kingdom, United States, Canada,

Sweden and Hong Kong to guide sustainability practice and to provide a framework

to assess performance and benchmark across the infrastructure industry (Griffiths et

al., 2015). These tools include CEEQUAL, Envision, Greenroads, and the

Infrastructure Sustainability tool developed by the Infrastructure Sustainability

Council of Australia (ISCA).

In addition to formal rating tools, sustainability guidance is also available in

various jurisdictions for public infrastructure works. The Commissioner for

2 The 2015 Stormwater Management Inquiry conducted by the Australian Government’s Environment and Communications References Committee is discussed in more detail in Chapter 4.


Environmental Sustainability in Victoria identified nine investment streams for

consideration in developing public infrastructure assets, each linking to project

specific opportunities (Commissioner for Environmental Sustainability Victoria,

2014). These are:

• Energy reduction;

• Water efficiency;

• Climate resilience;

• Materials resource efficiency;

• Transport and travel;

• Health, wellbeing and productivity;

• Community, amenity and built form;

• Emissions and environmental protection; and

• Ecosystem services.

Such guidance is focused on tactical performance responses, and is typically

incorporated into an already agreed, functional design. The ability to apply

sustainability initiatives in the design and operations phases is reliant on front-end

decision making that determines project scope, budget and timing parameters that

effectively control subsequent project phases (Samset & Volden, 2015, p. 5). However,

the ‘front end’ decision making processes involving the selection of a design solution

and the definition of scope for infrastructure projects may present a range of

sustainability outcomes.

The application of sustainable concepts at the operational or tactical level is

important and useful, however, such approaches do not necessarily lead to sustainable

outcomes such as improvements to economic development at the strategic level. There

is a need to differentiate between doing the projects more sustainably which is the

current focus of sustainability rating schemes, and ‘choosing the more sustainable

projects’, which is based on front-end decision making linked to the business case

(Haavaldsen et al., 2014, p. 5).


2.1.4 The role of infrastructure in sustainability value

Infrastructure services (water, transport, energy and communications) are critical

to well-functioning communities across the globe. Infrastructure is central to

sustainable development through its ability to bring benefits across the economic,

social, and environmental dimensions of society, providing benefits in areas such as

connectivity and mobility, health outcomes and climate change mitigation and

adaption (Shen et al., 2010; Foxon et al., 2015). The benefits of infrastructure are wide

and complex, and the application of economic models that simply assess value in terms

of materials and labour inputs in construction do not fully represent the diversity of

benefits such as “increased productivity, improved communication, efficient transport

systems, access to affordable energy and avoidance of natural catastrophes and

systematic disruptions” (Hall et al., 2016, p. 8). At the same time, infrastructure

projects may contribute to sustainability challenges including resource depletion and

air pollution, congestion, mobility impacts, human health impacts, community

interactions, urban amenity and environmental impacts.

Real or perceived notions of the failure of government to provide efficient and

effective services, has led to a growing role of the private sector involvement in public

infrastructure, through:

• The introduction of private sector management practices

(commercialisation);

• Charging developers for infrastructure and/or requiring them to provide

infrastructure;

• Contracting out (outsourcing) services;

• Contracting out construction and operations; and

• Full privatisation (Cannadi & Dollery, 2005).

Ownership models enable greater involvement by the private sector in delivery,

operation and maintenance, however, infrastructure services are considered public

assets that are provided for common good and are subject to government oversight in

planning and operation (Reidy, Kumar, & Kajewski, 2014).

Many public sector organisations adopt sustainability objectives at a corporate

level and incorporate sustainability targets and indicators as part of corporate reporting


processes. In an Australian context, the corporate plans and reports of infrastructure

agencies illustrate the range of interpretations and commitments to sustainability by

organisations that deliver services across the infrastructure sector (Reidy et al., 2014).

Definitions of sustainability vary widely, suggesting that public sector entities require

further guidance on sustainability reporting (Guthrie & Farneti, 2008). In order to

provide clarity for the water industry, Marlow and Humphries (2009, p. 120) proposed

the following operational definition of sustainability:

For a water utility, sustainability is practically achieved when all its activities,

both internal to the business and across its supply chain, achieve net added

value when assessed across each of the triple bottom line outcomes (financial,

social and environmental) over the medium-to-long timescales, considering

all costs and benefits, including externalities.

The Australian Government’s procurement guidelines include the principle of

sustainable procurement through ‘measuring and improving sustainability throughout

the life of the procurement’. The guidelines state that a sustainability approach should

allow for ‘a capacity for development that can be sustained into the future’

(Department of Finance, 2013).

The public sector provides public good that is beyond monetary value and

incorporates natural, social, human, manufactured and financial capital (Birney et al.,

2010). The value assigned to infrastructure assets varies according to the agents who

form part of the infrastructure business model. According to Bryson et al. (2014, p.11):

A publicly-listed investment bank, for example, prioritises the interests of its

shareholders. It is focused upon the economic value of return on investment

over a specific time period at a certain level of risk…At the other end of the

spectrum, a community association, for example, is focused upon the needs of

its local community. It is concerned with not just economic but wider social

and environmental values.

The Global Reporting Initiative (GRI) released its first sustainability reporting

guidelines in 2000, and the guidelines are widely used for sustainability reporting

across the globe by various industry sectors. GRI’s Sector Supplement for Public

Agencies stated that ‘given their size and influence, public sector agencies are

expected to lead by example in reporting publicly and transparently on their activities

to promote sustainability’ (GRI, 2005, pp7-8). Other commentaries highlight the


unique value created by public sector entities and propose that sustainability reporting

for the public sector should be tailored to each organisation’s specific activities rather

than being based on generic guidelines (Dumay, Guthrie, & Farneti, 2010).

2.2 INVESTMENT DECISION MAKING

The following sections explore the processes that form part of the decision-

making framework for infrastructure initiative in a public sector setting. The rules and

processes around decision making form part of a wider institutional settings and this

research seeks to understand how sustainability is framed within this decision-making

setting.

2.2.1 The role of the Business Case

As a prelude to discussion on incorporating sustainability within decision

making, this section describes the role of the business case within the project lifecycle.

The processes and guidance that are discussed have a genesis in the project

management profession and particularly the Project Management Book of Knowledge

(PMBOK) (Project Management Institute (PMI), 2008). PMBOK is an internationally

recognised guideline on project management and identifies the initiating stage as

incorporating early decision-making around project selection that may include benefit

measurement methods. The focus of this research is the initiating stage in the project

and program management (see Figure 2.1).


Figure 2.1. Project Management Process Groups from PMBOK (PMI, 2008)

Public sector projects are ‘a temporary endeavour, undertaken, managed or

overseen by one or more publicly funded organisations to create a unique product of

public value’ (Kassel, 2010, p.3) Recognising the unique characteristics of public

sector projects, as well as the need for greater transparency, government agencies

across the world have developed guidance material for project management

professionals with many Australian guidelines being built around industry guides, such

as the UK Government’s (Office of Government and Commerce) PRINCE2TM and

Gateway TM processes3.

3 The former UK Office of Government and Commerce (OGC) developed a suite of best practice guidance for project, programme and service management in the public sector that include Managing Successful Projects with PRINCE2TM, Managing Successful Programmes (MSP), Management of Risk: Guidance for Practitioners and OGC Gateway TM Review Process. In 2010, the Best Practice Management functions moved to the Office of Cabinet in the UK Government.

Monitoring and

controlling

Initiating

Planning

Executing

Closing


Regulatory oversight processes vary between infrastructure sectors, but the

formulation of business cases to support project proposals is clearly mandated. In

Australia, central agencies within state governments (such as the Department of

Treasury & Finance in Victoria) are responsible for approving and allocating funds for

infrastructure projects in the initiating stage. In the water sector, economic regulators

provide oversight of capital works programs that are linked to pricing decisions. Given

the value and significance of public infrastructure investments, major projects are

subject to governance and regulatory checks within the initiating phase.

In accord with government investment management guidelines, business cases

are developed in the initiating/ pre-investment stage for projects using economic

analysis as a supporting tool. A key focus from a stakeholder’s perspective is seen to

be the need to achieve ‘value for money’ which the Victorian Government defines as

a balance between costs of a good or service and ‘a range of attributes including

quality, performance standards, suitability, risk exposure, policy alignment,

timeliness, convenience, resource use and social and environmental impacts’

(Department of Treasury and Finance, 2013b, p. 18). The Investment Management

Standard used in Victoria provides guidance around problem definition, solution

definition, benefit definition, business case development, project management and

asset management.

The Australian Government’s Assurance Review Process for major projects and

programmes, outlines the key milestones or ‘gates’ within the project delivery

lifecycle, where reviews are expected to be carried out to support government approval

processes. Such assurance processes are also applied to state infrastructure projects.

The development of the Business Case is a major milestone which, when finalised,

forms the basis of final budget allocation or endorsement by government. The Business

Need/ Business Case document for a given project initiative describes delivery and

operating options together with non-asset proposals, and a final solution is developed

in detail. This approach aligns with the Australian Government’s Assurance Review

Process outlined in Figure 2.2.


Figure 2.2. Assurance Review Process adapted from Australian Government Guidelines (Department

of Finance, 2017)

Decision making at the front-end of projects is critical to ensuring long-term

project success through delivering benefits and creating value. Front-end decision

making refers to planning and analysis undertaken prior to the scope of the project

being defined and the budget being allocated. Options identified would be expected to

have different benefits, disbenefits and outcomes when assessed within a sustainability

framework. The strategic failure of projects has been linked to the inadequacy of

analysis and initial decision making in the initiating stage, where there is limited focus

on strategic performance (relevance, effectiveness and sustainability) and greater

focus on tactical performance (time, cost and quality performance) (Samset & Volden,

2015).

2.2.2 Project Benefits

The discipline of project management continues to concentrate efforts on the

‘iron triangle’ of performance metrics relating to time, cost and quality (Badewi,

2016). This singular focus on project outputs may ignore the broader organisational

context to which projects contribute, and the broader outcomes that align with

organisation objectives and stakeholder needs. In order to create a link between an

organisation’s business strategy and the projects that support strategy, investment

management or benefits realisation management (BRM) has been introduced (Too &

Weaver, 2014). Benefits mapping, undertaken as part of BRM, provides a mechanism

to provide a clear linkage between organisational strategy and the investment initiative,

and subsequently to performance measurement (Jenner, 2010). Benefits co-creation is

Business Need

Scope and purpose defined

Business Case

Confirm project

approach

Delivery Strategy

Clear definition of project (design)

Investment Decision

Supplier selection

for delivery

Readiness for Service

Services commence

Benefits Realisation

Review project success

Consider remedial actions


a process where sustainable development outcomes may be realised through working

with stakeholders in identifying and assigning benefits (Keeys & Huemann, 2017).

In a study addressing the link between overall strategy and project

implementation, Young et al. (2012) found that the project management and

investment management practices adopted in the state of Victoria, Australia in the

initiating stage are ‘best practice’ in comparison to other jurisdictions. Victoria’s

Investment Management Standard4 outlines a process for shaping or prioritising new

investments by firstly identifying the evidence-based ‘problems’ that must address the

benefits that are projected to be delivered, whereby benefits have key performance

indicators that are measurable and attributable (State of Victoria (Department of

Treasury and Finance), 2017). Used at the portfolio, programme and project level,

BRM is an area of practice within project management that is still in development, and

worthy of further research. A key criticism of BRM is that identified benefits can be

ambiguous or uncertain, however this should be a cause to increase focus on the

assumptions and risks around realising those benefits (Breese, 2012). Within an

infrastructure business model, outcomes and ultimately impacts of infrastructure

investments become more difficult to measure, are long term and may have a number

of influences (Bryson et al., 2014).

It should be noted that the concept of ‘benefits’ outlined above differs from the

term commonly understood in cost benefit analysis. Concepts of value and benefit can

be used interchangeably in the literature, and as these concepts are integral to this

research, it is necessary to define the meanings of these terms in the emerging results.

In the context above, ‘benefits’ are understood to be ‘the measurable improvement

attributable to an outcome’ presenting an opportunity to assess effectiveness (Morris,

2011, p.13). Furthermore, the term ‘value’ can be understood to relate more to

efficiency, with measures based on quotients such as function/cost, quality/cost or

performance/ resources, whilst ‘values’ may represent a much wider context with

4 According to DTF: ‘The investment management standard (IMS) is a process for applying simple, common-sense ideas and practices that help organisations to direct their resources and achieve the best outcomes from their investments’ (http://www.dtf.vic.gov.au/Investment-Planning-and-Evaluation/Understanding-investment-planning-and-review/What-is-the-investment-management-standard)


deeper meanings. Furthermore, studies of value management are linked with strategic

assessment of value. A further section of this literature review discusses additional

extensions relating to both value capture and public value, again adopting the broader

meanings of ‘value’.

2.3 APPRAISAL TOOLS

Government entities typically publish guidance materials that set out the

requirements around business case submissions linked to allocating government

funding. The Australian Government’s Handbook of Cost Benefit Analysis remains

relevant for commonwealth funded projects (Commonwealth of Australia, 2006). At

the state level, guidance is also available, often developed by central treasury agencies.

For the state of Victoria, the Economic Evaluation for Business Cases Technical

Guideline has been developed, and this may be supplemented by particular

requirements of each delivery agency (Department of Treasury and Finance, 2013a).

Cost Benefit Analysis generally forms the basis of analysis within Australia and

internationally, however there are a range of analysis techniques that are commonly

used and referenced in public discourse and these are further described below. Despite

these tools, the complexity of the initiating stage continues to contain various sources

of uncertainty which, according to Gosling & Pearman (2014), include:

• Uncertainty around inputs such as sampling, investigations;

• The quality of design inputs and reporting;

• Inconsistent analysis in supporting reports;

• Data irregularities;

• Questions over expert judgements;

• The use of assumptions;

• Uncertainties in valuations and use of models; and

• Dependencies between variables in models.

Following is an introduction to commonly used appraisal tools, preceding a more

detailed critique of the strengths and weaknesses of these methodologies.


2.3.1 Financial Analysis

Financial analysis is driven by an understanding that the efficient use of limited

financial resources is paramount. Under this paradigm, project evaluation should align

with market processes and the investment should yield a positive return to the

infrastructure provider (Templin, 2010). Financial evaluations include considerations

of discounting and calculating the net present value and internal rate of return,

considerations of payback period and break-even analysis and may incorporate

sensitivity testing. Financial analysis would typically include considerations of cost

savings and impacts, and revenue generated (Jenner, 2010). Environmental economics

may be used to inform analysis, with an example being market values associated with

loss of productive farming land.

2.3.2 Economic Analysis

A key tool that has emerged in the assessment of project options and selection

of a delivery strategy is Cost Benefit Analysis (CBA). According to the United States

Environmental Protection Agency, CBA evaluates ‘the favourable effects of policy

actions and the associated opportunity costs of those actions’ and it is desirable that ‘a

policy’s net benefits to society be positive’ (US EPA, 2010, p. xi). Whereas financial

analysis considers costs and benefits in terms of firms or shareholders only, the

monetary valuation of CBA relates to marginal societal impact. A key concept for

economists in the practice of CBA is utility, which is difficult to translate to

measureable changes (Hanley & Barbier, 2009).

CBA builds on financial analysis, taking account of wider economic benefits that

accrue from public projects, generally through the inclusion of externalities.

Externalities result from both costs and benefits that may accrue from a service, which

impact on groups other than those involved in the transaction (Cannadi & Dollery,

2005). Valuations of externalities may be derived by a range of modelling techniques

such as market pricing, revealed preferences techniques, stated preference techniques

and value transfer based on previous studies.

Infrastructure Australia was created to drive the development of a long-term,

coordinated national approach to infrastructure planning and investment. In outlining

national infrastructure priorities, Infrastructure Australia promotes the use of cost

benefit analysis in the assessment of generated project options, noting that Benefit Cost


Ratios (BCRs) ‘provide the best available objective evidence as to how well solutions

will impact on goals- but not the whole story’ (Infrastructure Australia, 2009, p. 5).

Infrastructure Australia stated that CBA should be “comprehensive” and include

‘wider economic, environmental and social impacts’.

The Productivity Commission is the Australian Government’s peak advisory

body on economic, social and environmental policy and regulatory matters. The

Productivity Commission’s Report on Public Infrastructure stated that all governments

in Australia should include ‘rigorous and transparent use of cost–benefit analysis and

evaluations, public consultation, and public reporting of the decision’ (Productivity

Commission, 2014, p. 39). The Productivity Commission report was critical of the

decision-making process around the Canberra Light Rail project proposal, whereby a

Cost Benefit Analysis favoured an alternative option, but then a Triple Bottom Line

assessment supported the (now) preferred option of Light Rail. The benefits in CBA

represent increase in human well-being (utility), costs in CBA represent reductions in

human well-being, and a project qualifies on cost-benefit grounds when its social

benefits exceed its social costs (OECD, 2006).

Spackman (2013, p. 11) noted that ‘any expenditure or regulatory decision

implies that the net monetary value of the benefits, in aggregate, is expected to exceed

that of the costs.’ The Victorian Government’s guidelines for business case

development state that ‘a cost-benefit analysis should capture all welfare costs and

benefits to society’, and that a preferred option should provide a ‘net public benefit’

(Department of Treasury and Finance, 2013a, p. 3). Using a ‘value for money’ or VfM

framework used by the UK government, the BCR produced from a CBA (adjusted for

wider economic impacts) may be used to categorise alternative investment options

(Australian Government, 2012). Using the VfM approach, projects with BCR of less

than one should not be considered, projects with a BCR greater than one may be

acceptable, and if several options are being assessed, the project with the highest BCR

should be favoured.

Cost Effectiveness Analysis (CEA) is a complementary analysis tool where the

overall costs for implementation are compared with the outcomes that are projected.

Best practice CEA incorporates sensitivity analysis that takes account of the

uncertainties in quantifying identified outcomes. Even so, the outcome of analysis is

seen to be limited in applying single dimension measures for outcomes that may


discount wider impacts and benefits (Robinson, 1993). Applied generally to health

projects, CEA is also used more broadly across infrastructure sectors, including the

transport and water sectors.

2.3.3 Extended (or Advanced) Cost Benefit Analysis

Extended Cost Benefit Analysis seeks to better align with sustainable principles

through acknowledging trade-offs between economic efficiency, equity and

environmental constraints (Turner et al., 1996). Investment appraisal under this

methodology incorporates economic modelling used in CBA, but seeks to broaden

monetary valuation to incorporate a wider array of environmental and social factors as

externalities. These may include private costs and benefits such as increases to

property value. Another feature of this methodology is to apply sensitivity analysis to

the monetised values of costs and benefits taking account of the assumptions adopted

in undertaking the analysis. Extended CBA ‘aims to optimise financial, environmental

and societal (or ‘triple bottom line’) costs and benefits and allows sustainability risks

and opportunities to be quantified in hard, monetary terms’ (Hardisty et al., 2013, p.

286). Using this methodology, the Water Corporation in Western Australia has

developed a Social Environment Tool (SET) that forms the basis of a dataset of values

that may be applied across a range of project scenarios within Advanced Cost Benefit

Analysis (Atkins, et al., 2010)

2.3.4 Multi- Criteria Decision Analysis (MCDA)

Multi-Criteria Decision Analysis (MCDA) (often referred to as Multi- Criteria

Analysis or MCA) provides a means to incorporate a wider array of factors into

decision making over and above financial and economic factors. Huang et al. (2011,

p. 3579) described MCDA as

a systematic methodology to combine these inputs with cost/benefit

information and stakeholder views to rank project alternatives. MCDA is used

to discover and quantify decision maker and stakeholder considerations about

various (mostly) non-monetary factors in order to compare alternative courses

of action.

Spackman (2013) differentiated MCA from MCDA whereby MCA assesses a policy,

programme or project against multiple criteria, whereas MCDA further incorporates

the discipline and rigour of ‘decision analysis’. MCDA is an analysis framework, in


which a number of criteria that are considered important to the investment decision are

outlined and allocated a weighting. The following steps would typically form part of

the MCDA process:

• Agree on project objectives;

• Identify context and key decision constraints;

• Identify a list of alternative options;

• Allocate weightings to each criteria;

• Combine the weights and scores for each option;

• Evaluate options for individual objectives or attributes; and

• Undertake a sensitivity analysis (Zavadskas, Liias, & Turskis, 2008).

MCDA is also viewed as a holistic approach that may take account of complex

interactions between individual components. Approaches to MCDA vary from simple

to highly sophisticated depending on the skills and number of analysts, the form of

data and information used (deterministic, stochastic, fuzzy set theory methods) and use

of analysis software (Huang et al., 2011). MCDA is seen as a tool that may assist in

‘the process of identifying and agreeing the investment criteria and their weightings’,

and ‘can help build consensus and commitment to the portfolio management process’

(Jenner, 2010, pp. 57-58). The decision context may be categorised by a model

(Cynefin model) that recognises the four domains of knowledge, being, known (the

cause and effect is known and understood); knowable (the cause and effect can be

predicted); complex (the cause and effect can be determined after the event); and

chaotic (the cause and effect is not apparent) (Stewart, French, & Rios, 2013). The

range of uncertainty relating to numerous criteria combined with numerous actions

across the four decision domains, requires MCDA to incorporate an understanding of

the range of perceptions from all stakeholders (Stewart et al., 2013).

Closely aligned with MCDA are Triple Bottom Line (TBL) assessment

processes, based on the work of John Elkington, who saw a need to expand the

environmental agenda to a wider sustainability agenda (Elkington, 2004). TBL was

originally applied to corporate level planning and reporting, but its use has expanded

to policy and operational (project level) decision making (ACT Government, 2011).

The common understanding of TBL is that it applies an integrated assessment of the


conflicting goals of economic/ financial factors, environmental factors and social

impacts and opportunities, and so it aligns with sustainability considerations. The TBL

framework is used to form the basis of assessment criteria, allowing options to be

ranked according to how options address weighted criteria (Taylor et al., 2006).

2.3.5 Other

The literature review has identified that a wide array of assessment tools and

techniques have been developed over time to support decision making at the front end

of infrastructure projects. It is impractical to discuss all available techniques,

particularly where some are bespoke models and may have limited application across

industry. For completeness, the following discussion addresses three further

approaches that are addressed in the literature, namely Appraisal Summary Tables,

Real Options Analysis (ROA) and Life Cycle Analysis (LCA).

Appraisal Summary Tables (AST) have been adopted for infrastructure projects

in the United Kingdom, and are used by the transport sector in some jurisdictions in

Australia. Guidance material describes AST as ‘a simple spreadsheet template that can

assist in describing the qualitative and quantitative impacts of your project/

programme’. The 2015 National Guidelines for Transport System Management in

Australia (NGTMSA) recommend the development of ASTs as part of business case

development. Spackman (2013, p. 23) stated that this technique has some promise to

be applied more widely across infrastructure sectors but ‘is best suited to long running

investment programmes, where successive project proposals need to be assessed

against criteria that change only slowly over time’.

Real Options Analysis (ROA) is categorised as a financial analysis tool that deals

with uncertainty and allows flexibility to respond to events in the future through

assigning value to the ability for managers to react to new information or change the

course of a project to respond to new environmental conditions (Brown & Robertson,

2014). ROA incorporates decision-tree analysis to assess risks and changes that may

emerge over time. The application of ROA to infrastructure projects is subject to

debate, with questions arising of the ability to apply theory to real life practice,

accuracies in valuation models and allocating value across multiple agencies (Garvin

& Ford, 2012).


The International Standard: Environmental management - Life Cycle

Assessment – Principles and Framework, 2006 (ISO 14040) defines life cycle as the

‘consecutive and interrelated stages of a product system, from the acquisition of raw

materials or the generation of natural resources until its final elimination’’ (Giudice et

al., 2006, p.88). LCA provides a framework for evaluating whole-of-life costs and

impacts for an infrastructure asset with considerations of sources of material inputs

and subsequent extraction, through to extraction and processing of raw materials,

through to end-of-life considerations such as landfilling, recycling, and reuse. LCA

does not provide a sustainability assessment alone, however the incorporation of LCA

may support broader analysis within investment decision making that considers

environmental, economic and social costs and impacts (Parrish & Chester, 2013).

2.4 CRITIQUES OF CURRENT APPRAISAL MODELS (CBA & MCA)

Foxon et al. (2015) noted that the public good aspects of infrastructure, whereby

works may contribute to wider social and environment aims, do not reconcile with

standard economic appraisal approaches. There remains a preference to frame complex

policy problems around simple models and Walker (2000) called for an optimal

decision-making approach that uses an appropriate set of tools from a ‘toolbox’ rather

than using a single tool to inform decision making.

As discussed earlier, CBA remains the key tool that is mandated to underpin

analysis in project appraisal and business case development. In view of some of the

acknowledged shortcomings of CBA, MCA/MCDA is used as an alternative to CBA,

or used in combination with CBA. The following sections further explore the literature

critiques of both CBA (section 2.4.1) and MCA (Section 2.4.2).

2.4.1 CBA

No discussion on investment decision making can be complete without a full and

detailed examination of the use of CBA. As noted previously, CBA is the tool that is

generally applied and often mandated to be used in business case development. Given

that CBA may be used as a ‘political weapon’ whereby favourable (or unfavourable)

results can be used to justify politically favoured projects (Sudiana, 2010, p. 10) , CBA

is also well understood in the wider community as the go/no go test for significant

projects. Political pressure and expert practice often reduce decision making to simple


singular representations to deal with incomplete knowledge (Stirling, 2010; Walker,

2000).

The Productivity Commission (2014) discussed the need for governments to

improve practice in ‘scoping and developing transparent cost- benefit analyses’ with

subsequent impacts on coherent decision making. The Productivity Commission

favoured the use of CBA to evaluate infrastructure options, however it also identified

problems in the use of CBA including:

• Optimism bias;

• Treatment of risk and uncertainty; and

• Treatment of wider economic benefits.

Furthermore, a report by the House of Representatives Standing Committee on

Infrastructure and Communications in 20145 described cost-benefit analysis as ‘a

mechanism for providing a logical and consistent consideration of all costs and

benefits associated with a project’. The Committee supported the Productivity

Commission’s comments in relation to endorsement of cost-benefit analysis but noted

‘serious deficiencies’ around procurement processes that included cost benefit

analyses. The report also outlined criticisms in submissions to the inquiry on the use

of CBA including:

• Infrastructure Partnerships Australia’s view that CBA is a powerful but

simplistic tool that is applied as a pass/fail test.

• Consult Australia’s view that a ‘wider economic benefits model’ of

assessment would be superior to CBA (Productivity Commission, 2014)

Guidance and critiques on CBA provide definitions that range from a pure

economic focus considering resource allocation and use (Hanley & Spash, 1993) to

the consideration of net social benefits (Commonwealth of Australia, 2006). Such an

5 The 2014 report by the House of Representatives Standing Committee on Infrastructure and Communications and the subsequent government response (14 June, 2017) can be accessed at http://www.aph.gov.au/Parliamentary_Business/Committees/House/Infrastructure_and_Communications/completed_inquiries. The Australian Government’s response provided in-principle agreement to ensuring greater consistency in CBA assessments across Australian governments and to include the evaluation of wider economic benefits through new guidance to be launched as part of the Australian Transport and Planning (ATAP) guidelines.


array of interpretations will reflect in the application of CBA across organisations and

industry sectors. Mouter et al. (2015) stated key limitations of CBA as:

• CBA studies are incomplete- there are intangible factors that can’t be

measured;

• Outcomes of welfare considerations are uncertain, particularly when

forecasting the future; and

• Some effects are difficult to measure and monetise.

Further, more specific critiques deal with questions on the ability of CBA to

appropriately represent value (including cultural values), the use of discount rates and

cost models, and the wider interpretations of CBA analysis. The following discussion

addresses some key criticisms of CBA around general limitations, use of valuations,

the use of discount rates, cost estimates and the overall application of CBA in decision

making and these topics are presented below.

Valuation

Where benefits relate to environmental systems, the valuation of benefits within

CBA draws on the discipline of environmental economics. The concept of Total

Economic Value (TEV) recognises that there is a quantifiable, market-based value that

can be applied to environmental goods and services, together with non-market,

intangible values that can be approximated by revealed or stated preference methods

(Markantonis et al., 2012). The assignment of a monetary value to ecosystem services

(that have no market value), has been successfully applied to policy formation and

broader understandings of the contribution of natural assets to the overall economy. In

an urban planning context, economic valuations have been applied in a range of uses

including awareness raising, accounting, priority setting, instrument design and

litigation (Gómez-Baggethun & Barton, 2013). However, the reliability and accuracy

requirements for valuations varies across these contexts, with a lower level of accuracy

required for application in awareness raising or policy setting, and a greater degree

required for decision support around land-use planning. Work led by the US

Environmental Protection Agency has provided case studies on how various

authorities have incorporated ecosystems valuation techniques within option analysis

(US Environmental Protection Agency, 2013). The case studies include examples of


monetising benefits associated with green infrastructure that are not traditionally

included in CBA, such as costs for habitat creation and some social benefits.

Approaches to valuations are based on one of two philosophical positions: the

anthropocentric approach, based on value to human society and the biocentric

approach that takes account of impacts to society as well as to all other species

(Goulder & Kennedy, 2011). Valuation techniques commonly adapted in

environmental economics are based on an anthropocentric approach and are

summarised in Table 2.1, together with brief commentary on the relevant applications

and limitations.


Table 2.1

Valuation techniques commonly adopted in environmental economics

Technique Description Application Limitations

Hedonic Pricing

(Turner, Morse-Jones, & Fisher, 2010)

Use of marketed value of goods to measure the implicit price of non-market good

Increase in house prices due to proximity to wetlands

Large data requirements

Sensitive to place, context

Travel Cost

(Turner et al., 2010)

(Hanley & Barbier, 2009)

Use of travel surveys based on observed travel and time expenditure

Assessing recreational benefits

Limited contexts

Large data requirements

Value of time

Complex when trips are multipurpose

Productive Function

(National Research Council, 2008)

Assessing the productive value of ecosystems

Fisheries

Wetlands

Values single elements that have market value rather than overall ecosystem habitat

Replacement Cost


Using the cost of a man-made substitute of an environmental asset

Seed dispersal in lieu of natural pollinators

Non-use values not included

Benefit Transfer

(Richardson et al., 2014)

Use of values associated with previous studies to assign value to new case

Broad use- valuing ecosystems

Misuse of guidelines

Low level of precision

Contingent Valuation Method


(Hanley & Barbier, 2009)

Use of surveys to determine what people are Willing to Pay (WTP), or Accept (WTA) for a given good or service

Flood protection Time and cost of surveys

Sources of bias- survey design, hypothetical responses on value, strategic responses

Inconsistent preferences

Choice Modelling Method


Use of surveys where respondents choose a preferred option from a range of alternatives

Preservation of wetlands, endangered species

Potential biases by respondents

Difficulties in data design and modelling responses

Life Satisfaction Analysis

(Welsch, 2006) (Carroll, Frijters, & Shields, 2009)

Use of surveys on life satisfaction as an econometric measure of environmental conditions

Impacts of pollution

Impacts of drought

Data integrity and limitations


Of the valuation methodologies, ‘Willingness to Pay’ (WTP) is commonly

applied and understood. Some key challenges in using economic assessments of WTP

are seen to include that (from Hanley & Barbier, 2009; Gómez-Baggethun & Barton,

2013):

• Variations in population density will affect WTP;

• Distance from services will influence WTP;

• Recreation substitution alternatives will influence WTP;

• Higher populations can provide a greater array of perspectives;

• Socio-economic circumstances will affect WTP;

• There are few studies on the economics of connectivity;

• Over time, values are likely to change; and

• The boundaries adopted will influence both costs and benefits.

Cultural Values

The social dimension of sustainability presents a higher degree of complexity in

analysis for infrastructure projects. The application of valuation techniques to social

and cultural values presents as an area for further development and understanding.

Various studies (Williams et al., 2012; Shamai, 1991) have sought to quantify cultural

values and sense of place, however others contend that cultural values reflect a

complex range of ‘emotional, affective and symbolic views’ that are difficult to

capture within a single monetary value (Gómez-Baggethun & Barton, 2013, p. 239).

More broadly, measures of social cultural values are difficult to construct, particularly

in developing understandings of the full range of social dimensions, and hence may

have limited meaning. In urban areas, the ability to assign value to social and cultural

aspects is particularly challenging due to the high level of cultural and social diversity

of residents. The application of ecosystem services valuation methodologies to cultural

values is widely questioned, and further research is proposed to more fully examine

how cultural values may be presented in economic analysis (Chan et al., 2012).

In Australia, policy development at the national level (the National Water

Initiative) and state level (as an example, Water for Victoria) seek to encourage the

consideration of indigenous values in planning and development activities. Cultural

values of water from an indigenous perspective may incorporate the following beliefs:


• Water bodies are ‘living’ with different personalities and powers;

• Water is life-giving;

• Land and water are part of a whole and all waterbodies are inter-related;

• Indigenous people have a special responsibility to safeguard the water

bodies to maintain physical and spiritual well-being; and

• Water bodies provide a sense of identity to those living in proximity

(Jiménez et al., 2014).

These values continue to form the basis of conflict resulting from development

works impacting on the rights and wellbeing of indigenous communities. The conflict

with cultural values has resulted in the cancellation or suspension of projects, or for

some, the operation of infrastructure within an environment of indigenous opposition

(Jiménez et al., 2015). In contrast, the works associated with the City Rail Link (CRL)

in Auckland New Zealand, incorporated input from the local Maori Mana Whenua into

the project design to reflect a sense of place 6. In the water sector, collaborations with

New Zealand Maori in developing water schemes has led to unique design solutions

that acknowledge the guardianship and environmental protection role of local tangata

whenua people, but also respect beliefs around the treatment of human waste,

discharges into water bodies and changes to existing land formations (Bradley, 2013).

A key consideration for this research is how to best represent social/ cultural values in

an integrated and full sense within the appraisal process.

Discount Rates

The application of a discount rate is central to financial and economic analysis

and reflects the time value of money. Long term discount rates need to reflect

projections of growth which become difficult to forecast into the distant future. The

choice of discount rate is then central to CBA, and becomes further problematic when

applied to environmental assets or considerations of the long term impacts of climate

change in the face of uncertainty. The discounting of environmental factors into the

future means that issues such as habitat loss, biodiversity impacts or environmental

6 Details of the CRL are on the ISCA website: https://isca.org.au/index.php?option=com_content&view=article&id=987


degradation have a disproportionally lower weighting over time. On this basis, there

are calls for a social rate of return that is lower than the private rate of return and that

should steadily decline over time (Weitzman, 1994). According to some, project

proponents are taking an ethical view about the claims of future generations, hence a

zero value (which places greater value on the future) or a value less than market value

should be applied in economic analysis (Hanley & Barbier, 2009)).

Cost Estimates

Within the Cost- Benefit equation, the cost side for major infrastructure projects

also presents a degree of uncertainty. Well publicised projects with cost over-runs

include the Sydney Opera House, the Channel Tunnel and locally, the Gold Coast

Light Rail and Logan Motorway projects (Coultan, 2016). Studies on both cost and

benefits of infrastructure projects ex-post show both cost over-runs and benefit

shortfalls when compared with ex-ante studies (Flyvbjerg, 2009). Flyvbjerg’s study

of actual project costs in the transport sector, covering 20 nations and 258 projects,

indicated over-runs of between 20.4 percent (roads) and 44.7 percent (rail). If applying

the rule that only projects with a positive BCR should proceed, it then follows than

numerous projects that have been approved and constructed were based on flawed

analysis with a high degree of uncertainty. Considerations of information limitations,

strategic misrepresentation and optimism bias within the initial planning studies,

combined with scope changes during construction, are some of the factors contributing

to cost over-runs (Love et al., 2014) A study by the Grattan Institute referenced

Flyvbjerg’s work and, using 51 transport projects in Australia valued over $100

million, found average cost overruns of 20 percent after contracts were awarded

(Terrill, et al., 2016). Studies of water sector projects in Australia indicate that the

introduction of Risk-Based Cost Estimation (RBE) has significantly improved

estimation accuracy and the occurrence of cost over-runs. In addition, new

technologies have the potential to improve cost estimating accuracy (Love et al.,

2014).

Broader use of CBA

Commentaries on the use of CBA identify that it may be used either as a

‘decision rule’ or a ‘heuristic aid’ (Turner, 2006, pp. 1-2). Despite CBA being a

requirement of business-case development across jurisdictions, the use of analysis has

been shown to vary widely. A study of guidance manuals for transport appraisal


practice and project prioritisation across seven countries (England, The Netherlands,

Germany, Sweden, the United States, Australia and New Zealand) showed that CBA

formed part of transport appraisal manuals that are mandated for the use of public

funds, and particularly for projects funded at a national level (Mackie & Worsley,

2013). However, the application and use of CBA varies. For transport projects in the

Netherlands, CBA was found to be incomplete in addressing environmental effects,

and non-monetised effects were often not addressed in CBA reports (Annema &

Koopmans, 2014). Haezendonck (2008) investigated investment decision making for

transport infrastructure in Germany, Denmark and the Netherlands and found a range

of approaches in the use and application of CBA across jurisdictions. The use of CBA

was either ‘informative’, ‘advisory’ or ‘decisive’ in supporting decision making within

each jurisdiction. Haezenonck’s study sought to compare approaches in current

practice and to gain insights from experts on an optimal model for future decision

making. The experts indicated a preference to rely less on CBA in decision making

(whereby CBA should be ‘advisory” only), together with enhanced engagement of

community groups who should act as partners in the decision-making process. Further

studies have discussed the trade-offs between environmental, social and economic

factors that are made outside the formal appraisal process (Samset & Volden, 2015).

Studies of decision making for transport projects highlight the ‘melting pot’ of decision

making, whereby analysis is subject to judgements that are affected by intuition and

visions, together with both internal and external pressures that influence outcomes

(Mackie et al., 2014, p. 4).

In the water sector in Australia, cost benefit analysis is generally required ‘in

principle’, however in practice, ‘there are no universal standards or clear guidelines on

option evaluation for water supply augmentation’ (Ananda, 2014, p.130). Ananda also

noted the limitations of current economic analysis whereby CBA is not capable of

effectively dealing with climate change uncertainty.

2.4.2 MCDA/MCA

Approaches to MCDA vary, with numerous interpretations in structure,

protocols for producing inputs, and processes for interpretation and reporting.

Variations of MCDA/ MCA include:

• Social-science-based deliberative MCA;


• Facilitated MCDA; and

• Non-facilitated MCDA.

For some, MCDA is ‘the most powerful technique for establishing criteria and

comparing options on the basis of monetised and non-monetised information’

(Spackman, 2013, p. 25). A key benefit of MCDA is the ability to demonstrate the

trade-offs that are required to be made with competing project objectives, when

comparing alternatives that may produce differing outcomes (Linkov et al., 2006).

Attributes of MCDA include its ability to deal with a range of diverging data and

criteria that are both quantitative and qualitative, its ability to provide structure to a

specific problem, and its ability to address uncertainty and gaps in knowledge

(Mendoza & Prabhu, 2005). By involving an array of social actors representing various

positions in decision making, MCDA provides a mechanism to identify values and

preferences when options include non-traditional infrastructure responses (Domènech,

March, & Saurí, 2013). In a review of trends and applications of MCDA over ten

years, Huang et al. (2011) found that the application of MCDA methods improved

decision-making processes and led to greater public acceptance of suggested

initiatives, however the use of MCDA would be improved through the development of

common language and better integration of tools.

A multi-criteria decision analysis may provide a holistic approach incorporating

inter-generational considerations (Bond & Morrison-Saunders, 2011). However, the

effective application of MCDA requires the input of senior staff representing a range

of disciplines and, even when such experts are available, it is demanding of their time.

MCDA may also require a senior and powerful sponsor. On this basis, the scope for

the application of MCDA in central government is often limited (Spackman, 2013).

Critics of MCDA see this methodology as highly subjective when compared to

CBA, and potentially lacking transparency, as it does not provide a conclusive

outcome. The process of assigning weights and scores can be manipulated, and when

applying assumptions that are not clearly articulated, MCA is potentially subject to

misuse (Turner, 2006). With no single approach, and each particular problem subject

to more tailored MCA techniques, the choice of approach may draw different

conclusions in different contexts, reflecting the preferences of those conducting the

analysis (Zavadskas et al., 2008).


As a decision support tool, MCA/MCDA on its own may not necessarily

produce a definitive answer, but rather a framework to assess and prioritise a range of

factors based on relative merits. Some commentaries support the incorporation of

MCA with CBA to handle items that cannot be accurately quantified or monetised

(Spackman, 2013).

2.5 THE ROLE OF THE PRIVATE SECTOR

As a public good, infrastructure provision has traditionally been a responsibility

of the public sector. The public sector’s focus on long term outcomes, taking account

of the need to equitably allocate services across communities, supports its role as a

provider of infrastructure services. However, in seeking a broader array of mechanisms

to meet infrastructure backlogs, new delivery models are being initiated. Legislation

has been introduced in some jurisdictions to allow competition to what were

traditionally government-owned monopolies. Using the private sector, with a focus on

short-term financial returns on its investments, to fund the provision of public

infrastructure, offers potential benefits that address perceived government failure in

infrastructure provision, particularly around efficiency, technical ability and ability to

innovate (Koppenjan & Enserink, 2009).

Contracting arrangements such as Public Private Partnerships (PPPs) are

increasingly being used to implement major projects. PPPs represent long-term

contractual agreements between a private operator/company (or a consortium) and a

public entity, under which a service is provided, generally with related investments

(Saussier et al., 2009). PPPs may be initiated through government planning processes

or unsolicited and proposed by private sector entities (Merk et al., 2012). Models for

PPPs vary from privatisation of assets to full public ownership, depending on specific

circumstances of the project. In Australia, PPPs are treated as operating lease

arrangements, meaning that all risks and benefits associated with ownership are treated

as being retained by the private sector (Chan et al., 2009). In a sustainability context,

such arrangements can mean that the financial burden of PPP infrastructure

investments is effectively shifted not to the private providers, but to future users of the

service. In addition, rather than shifting delivery from a monopolistic public sector

provider to a competitive market place, the net effect of a PPP arrangement may, in

fact, be long-term concessions and legal monopolies. In order to better manage such


adverse outcomes, sustainable contract design should incorporate competitive

processes, transparency and accountability (Koppenjan & Enserink, 2009).

2.6 PARTICIPATION

Within an urban planning context, deliberative participation techniques,

involving all stakeholders and affected citizens, have been proposed to integrate

broader concerns, values and preferences within the decision-making process, thus

addressing concerns that many consultative processes are not fully inclusive (Bond &

Morrison-Saunders, 2011). In its purist form, decision making for infrastructure

projects may be based on referenda providing a clear political mandate to proceed with

defined initiatives. Various examples of referenda on public transport initiatives may

be found in Basle, Zurich and other cities in Europe, whilst in the United States, a

significant proportion of state and local capital investment has been based on

referendum voting (Bratzel, 1999; Gramlich, 1994).

Building on the strengths of deliberation, and merging these within a

sustainability framework, Raphael (2011) proposed an alternative approach that is

referred to as collaborative sustainability assessment. Bos et al. (2014) discussed a

similar collaborative approach applicable to the urban water sector that is built upon

transition management processes. Using an empirical case study, a multi-arena

structure involving participants from the technical arena (engineers, landscape

architects etc), executive arena (managers and senior executives from local

government) and the local arena (residents, municipal representatives, community

groups, representatives of state agencies) all contributed to formulating project options

and solutions. The social coalition of community representatives was important in the

development of a broad vision and in communicating community values. The key

design considerations in a collaborative change process should include:

• Front running actors to identify like-minded individuals or existing

networks to create dedicated time/space for interaction amongst diverse

actors.

• Deliberate effort on building themed networks and coalitions in design,

structure and organisation of change programme.

• Development of localised visions related to overall vision to guide and

motivate local action.


• Developing agendas for change at different levels of a socio-technical

system through a range of processes and activities.

• Investment in a dedicated project team that is able to cope with complexity

and uncertainty (Bos et al., 2014).

At the same time, a study on policy networks forming part of climate change

planning in South East Queensland has shown that the establishment of formal

institutional networks do not, alone, foster strong collaboration. The engagement

process with key institutional stakeholders needs to be appropriately designed to take

account of issues of contestation, vested interests, factions and cooperatives, taking

into account that some stakeholders will seek to advocate singular interests

(McAllister, McCrea, & Lubell, 2014).

Stakeholder input into project evaluations may be captured through deliberative

participation processes that involve wider institutional stakeholders and/or community

end users to frame the final solution to a given infrastructure problem. Collaborative

processes are built on an understanding that problems may be best solved through

partnerships, and that government agencies alone cannot fully understand the problem

definition, optimal design responses and implementation solutions (Weber &

Khademian, 2008). The need for greater input from the ultimate users of infrastructure

assets is advocated in many studies. Spash (2009) contested that ecological economics,

based on the valuation of environmental services, should be broadened to social

ecological economics to capture notions of public participation and empowerment.

Others advocate broader public participation in addressing deep and complex

problems, however ‘community engagement’ and ‘partnership’ involving real power

sharing is yet to be widely evidenced due to reluctance of government institutions to

devolve control, together with the capacity of citizens to participate effectively (Head,

2007). The input of active citizenry provides transparency and integrity in decision

making, however collaborative forms of civic engagement are not adopted in the

investment decision-making process as they are costly and resource intensive (Head,

2007).

The Water Services Association of Australia (WSAA) identified stakeholder

involvement as a critical component of developing more sustainable options for the

water industry. The International Association for Public Participation identifies five

types of participatory relationships as part of the widely adopted IAP2 Spectrum


(IAP2, 2007). These are informing, consulting, involving, collaborating and

empowering, with each level providing a progressively greater level of public impact.

IAP2 advocates that the level of participation should be determined on the basis of

goals, time frames and resources. WSAA stated that the IAP2 spectrum provides a

range of participation options that may be adapted to different requirements in a

decision-making process. Public participation remains a challenge for both decision

makers and practitioners, particularly in relation to equity issues and inclusion of

vulnerable groups (Serrao-Neumann et al., 2014). Some commentaries contend that

public participation may not only translate into better outcomes, but that involvement

of the public may translate to greater legitimacy of decisions. As such, the

implementation of participatory processes based on IAP2 requires careful design, and

the use of experienced, professional facilitators who may assist administrators to

identify and understand public values and ensure that participation bias is avoided

(Nabatchi, 2012).

The adoption of public participation processes varies across and within

infrastructure sectors. The non-homogenous nature of cities and urban areas presents

additional challenges for deliberative processes, in identifying meaningful metrics to

represent social and cultural values (ErikE. Gómez-Baggethun & Barton, 2013). The

choice and design of participation methods needs to be carefully crafted to address the

matter under consideration. Fung (2015) formulated a three-dimensional model (the

democracy cube) with the three variables in the construction of participation approach

being:

• Who participates?

• How do they communicate and make decisions?

• What influence do they have over the resulting public decisions and actions?

The incorporation of participative processes that capture community values

within decision-making processes allows end users and those potentially affected by

projects to provide input on local community values (historical, aesthetic and other

social values). According to Gibson (2006, p. 173), ‘in sustainability assessment, all

policy and development objectives are considered together and the trade-offs are

addressed directly’. Given that investment decision making incorporates value

judgements, the inclusion of broader analysis that includes public participation may


more effectively assist in addressing deep and complex problems. A key challenge in

designing participation approaches into the future is the question on the level of

empowerment given to citizens involved in participatory processes and the balance of

power remaining with elected politicians (Fung, 2015). At the same time, the

emergence of digital technology and the availability of greater amounts of information

are likely to result in greater demand by citizens to contribute to decision making.

Projects can often be politicised and subject to media scrutiny, ‘making cool,

dispassionate assessment of such projects problematic’ (Mackie et al., 2014, p. 5).

Political commitments may be based on incomplete analysis, and provide a level of

detail that negates the ability to investigate a broader array of options. The Victorian

Desalination Plant and North-South Pipeline projects provide examples, which,

according to Ananda (2014) indicate the politicisation of decision making in relation

to water supply augmentation, and illustrate an ‘institutional vacuum’ that has led to

political decisions. The primacy of democratic processes requires elected

representatives to consider and resolve issues around value choices and welfare, and

this may not be in accord with participative processes involving a broad array of

stakeholders (Skelcher et al., 2005). At the same time, politicians are required to

communicate outcomes of decision making processes, and there is a preference by

politicians for simple messages supported by easily understood analysis rather than

complex and nuanced analysis (Mouter et al., 2015).

2.7 CALLS FOR A NEW APPROACH

The iBUILD Centre at Newcastle University (UK) ( Brown & Robertson, 2014)

released a research report in October, 2014, that noted the difficulties to achieve

defensible decision making for infrastructure initiatives in the face of uncertainty. The

report presented the need for improved, iterative processes to support decision making

for infrastructure in light of its ‘peculiar’ characteristics, in that infrastructure services

provide a public good, with multiple complex values and numerous stakeholders.

Taking account of these challenges, Brown & Robinson (2014) discussed the need for

further research focused on infrastructure valuation and appraisal that incorporates a

multidisciplinary approach in improving the technical and socio-economic policy-

making systems. The use of financial models to assess the value of infrastructure

continues to be questioned and it has been proposed that new business models take

account of the wider values of public infrastructure (Bryson et al., 2014).


2.7.1 The multiple values of infrastructure

Despite the range of tools to evaluate the impacts and benefits of infrastructure

works, there remain numerous unknowns relating to how infrastructure assets will

perform and adapt into the future to meet challenges that include climate change and

resource depletion; changes in the global economy and energy prices; an increasingly

complex regulatory environment and community; and social issues (Marlow &

Humphries, 2009). Infrastructure has unique characteristics including complex and

multiple values with direct economic returns, but also wider environmental and social

implications (Bryson et al., 2014).

Traditional economic analysis uses models that assess outcomes in terms of

equilibria and considerations of efficiency. Aspects of value that do not form the basis

of traditional economic analysis include:

• The range of values associated with resilience to climate change impacts in

urban areas such as balancing water flows and reducing flood impacts, together

with supporting localised food production (Demuzere et al., 2014);

• The cumulative value of a project’s contribution to infrastructure networks

(Wellman & Pretorius, 2012);

• Economic development opportunities and linkages to investment in new

‘smart’ jobs that provide new taxation revenue (Foxon et al., 2015);

• Practical elements of market transactions such as agent behaviours and

transaction costs (Harou et al., 2009);

• The value of cost reductions, efficiency, or improved value associated with

interdependencies between different forms of infrastructure (such as a railway

embankment acting as a flood defence barrier) using a ‘systems of systems’

approach (Bouch et al., 2015; Rosenberg et al., 2014); and

• Opportunities to improve the intellectual capital of the water sector to learn and

innovate (Farrelly & Brown, 2011).

The uncertainty and difficulties in front-end decision making as evidenced in

industry practice have been subject to criticism across various sectors. Initiating

processes for projects may also form part of broader decision-making processes across

a program of works or portfolio of initiatives. A review of empirical research literature


(focused on private companies) indicated that actual practice often does not align with

rules and models for decision making that have been developed (Martinsuo, 2013). In

the transport sector, the Victorian Auditor General’s Office considered that the

decision-making process around the now abandoned East West Link project was based

on ‘flawed advice’ whereby ‘the likely net benefits of the project were not sufficiently

demonstrated and the failure to properly resolve project risks before entering contracts

exposed the state to additional financial risk (VAGO, 2015, p. vii). In the water sector,

the Australian Academy of Technological Sciences and Engineering (ATSE) has

identified a need for new governance models to better manage urban stormwater in

Australia and proposed more ‘robust’ appraisal models that acknowledge the

complexity of integrated water management systems. According to ATSE, the ‘present

models are too narrow in scope and cannot assess the true value of investments made

into green stormwater systems that provide high amenity value to our cities while

delivering on basic water services’ (ATSE, 2015, p. 6).

The following section addresses the role of sustainability in investment decision

as part of a new model in investment appraisal.

2.7.2 Incorporating sustainability in investment appraisal

Sustainability provides an operating paradigm that may allow infrastructure

providers to respond to complexity and uncertainty in the face of new and emerging

challenges centred on resource scarcity and depletion (Marlow & Humphries, 2009).

Sustainability appraisal has been effectively incorporated into design and operation of

infrastructure developments, however there is less developed practice in incorporating

sustainability in investment decision-making processes.

Empirical studies have shown that, in practice, attempts to identify project-level

benefits within the investment decision-making phase often do not align with higher

level strategic goals ( Young et al., 2012). Furthermore, the business case development

stage for projects is generally focused on short-term, economic factors, rather than the

longer-term perspective that sustainability requires. There is a conflict between the

temporary nature of projects and the longer-term view that sustainability requires

(Silvius et al., 2013). Project managers work within guidelines developed through the

project management discipline, and, for the investment decision-making phase, have

limited guidance in incorporating organisational sustainability objectives.


Haavaldsen et al. (2014) discussed the range of ‘front end’ investment appraisal

options that may address sustainability and noted that the number of tools reflect

different understandings of sustainability. These analysis tools each address various

levels of analysis (strategic, tactical and operational) and present alternative

approaches in whether, or how, each of the three sustainability aspects are assessed.

Sustainability evaluations should incorporate a ‘multiple bottom line of systems

integrity and ethical engagement explored across economic, social and environmental

spheres that are coevolving through time’ (O’Connor, 2006, p. 7). Whilst substantial

analysis is being undertaken to address gaps in knowledge around the monetisation of

environmental and cultural factors(Pearce et al., 2006), numerous studies highlight the

perceived shortcomings of CBA in the context of sustainable infrastructure decision

making and dealing with complexity (O’Connor, 2006). For sustainability assessment,

Haavaldsen et al. (2014) considered that CBA has the potential to impact on the three

pillars of sustainability at the operational level, but not at the strategic level. MCDA is

presented as a framework that better aligns with sustainability considerations (Cinelli

et al., 2014; Azapagic & Perdan, 2005; Clemen & Reilly, 2001; Munda, 2008). MCDA

employs a broad range of criteria, both quantitative and quantitative, that are important

to the investment decision and in addressing sustainability targets, including

considerations of intergenerational impacts (Maheepala et al. , 2003; Spackman,

2013). For complex decisions, various critiques have suggested the incorporation of

MCA with CBA and other analysis techniques to more fully assess options, and

address the perceived shortcomings of using MCDA alone (Jenner, 2010; Eales et al.,

2005; Beria, Maltese, & Mariotti, 2012). An integrated approach, using a combination

of methodologies and viewpoints, including CBA, may provide the most appropriate

response to address sustainability where government guidelines require CBA (Jenner,

2010).

Sustainability assessment involves comparing and ranking of options using both

‘hard’ and ‘soft’ appraisal methodologies that recognise the complexity in decision

making and the trade-offs that are required between a range of values (Gibson, 2006).

An effective method that combines quantitative and qualitative and that incorporates

stakeholder views, has not yet been fully developed for decision-making (Linkov et

al., 2006). Gibson (2006) asserted that a sustainable approach in decision making for

infrastructure projects incorporates involvement of all stakeholders, as a means to


address complexity. A holistic approach ‘understands systems as having complex

interactions which can't (currently) be fully understood in terms of the sub-components

which make up the full system’ (Bond & Morrison-Saunders, 2011, p. 2). A clear

definition of sustainability is important as some authors discuss the concepts of weak

and strong sustainability that will drive different outcomes and approaches (Saez &

Requena, 2007; Ness, et al., 2007).

Figure 2.3 presents the key appraisal methodologies in terms of ability to deal

with complexity and, hence, to apply an integrated sustainability lens (from Reidy et

al., 2014). Regulatory processes favour analysis based on a financial or economic

parameters using cost benefit analysis (and potentially Extended CBA), whilst

sustainability considerations favour multi-dimension analysis. In a regulatory sense,

the preference remains to adopt formal rationality rather than a ‘soft science,

participative focus’ that, according to Walker (2000, p. 15), may better address

complex problems. A key challenge is for decision making to effectively incorporate

sustainable development principles whilst addressing regulatory review requirements

within current institutional settings.


Abi

lity

to d

eal w

ith in

crea

sing

com

plex

ity

Figure 2.3. Spectrum of Evaluation Methods (modified from Reidy et al. (2014)

2.7.3 Value Capture and Public Value

The work by iBUILD research centre in the UK advocates the need for new

business models that capture the full value that public infrastructure provides. These

values relate to the direct use of infrastructure and the indirect values that infrastructure

provides (Foxon et al., 2015). A business model for infrastructure relates to ‘the system

of physical artefacts, agents, inputs, activities and outcomes that aim to create, deliver

and fully represent economic, social and environmental values over the whole

infrastructure life cycle’ (Bryson et al., 2014, p. 7). As part of an infrastructure business

model approach, value capture includes social value capture. An example of social

value is provided in heat network infrastructure involving a combined heat and power

system; this would place a value proposition on the alleviation of fuel poverty, which

has no direct revenue stream, hence a case could be made for funding by general

Financial Analysis•Profitability criteria•Costs and revenues•Monetary valuation

Economic Cost-Benefit Analysis•Economic efficiency•Monetary valuation

Extended Cost – Benefit Analysis•Economic theory and equity trade-off•Partial monetary evaluation

Multi Criteria Decision Analysis•Qualitative and quantitative analysis

Stakeholder Analysis•Qualitative assessment

Meets Regulatory Review


taxation. Ecological value capture from investments into smart grids may be based on

the avoided costs in infrastructure upgrades and maintenance savings, together with

providing support for further investments in renewable energy schemes (Foxon et al.

2015).

Just as interpretations of sustainability vary, notions of value capture also vary.

According to the report, Harnessing Value, Delivering Infrastructure7 by the

Australian government, value capture (also referred to as ‘land value uplift capture’)

is defined as ‘a means by which governments can recoup some of the costs of transport

infrastructure’ (Commonwealth of Australia, 2016a, p. 153). For transportation

projects, value capture encapsulates the increases in private property values, and may

be realised through direct mechanisms (taxes or rates) or indirect means through the

recovery of ‘a share of the actual cost of the public works, regardless of the property

value increase’, and may also be seen ‘as an opposite to compensation for negative

externalities' (Heeres et al., 2016, p. 3). According to the Victorian Government8, the

direct benefits associated with value capture include improved services for users of

social and economic infrastructure and increased land and business value for owners

and occupiers of rezoned land, and indirect benefits are associated with owners and

occupiers of properties near transport infrastructure, commercial benefits from

unlocking untapped opportunities, and lower business costs due to reduced congestion

of infrastructure. These interpretations place ‘value capture’ as a transactional and

financial valuation term.

7 This report from the Australian Government’s Standing Committee for Infrastructure, Transport and Cities responded to the Inquiry into the role of transport connectivity on stimulating development and economic activity. Hence the focus of “value capture” relates to the transport sector. The report may be accessed at

http://parlinfo.aph.gov.au/parlInfo/download/committees/reportrep/024018/toc_pdf/HarnessingValue,DeliveringInfrastructure.pdf;fileType=application%2Fpdf

8 The Victorian Government’s Value Creation and Capture Framework that seeks to “get better value from all Victorian taxpayer’s money from all future infrastructure projects” was released in 2016. See: http://www.dpc.vic.gov.au/index.php/news-publications/value-creation-and-capture-framework


On the other hand, the concept of public value is a broader term, but again subject

to a range of understandings (Bryson et al., 2015). Benington (2009, p. 237) provided

the following definition of public value:

… (it) extends beyond market economic considerations, and also

encompasses ecological, political, social, and cultural dimensions of value- all

that adds value to the public sphere.

• ecological value—adding value to the public realm by actively

promoting sustainable development and reducing public ‘bads’ like

pollution, waste, global warming.

• political value—adding value to the public realm by stimulating and

supporting democratic dialogue and active public participation and

citizen engagement

• economic value—adding value to the public realm through the

generation of economic activity and employment

• social and cultural value—adding value to the public realm by

contributing to social capital, social cohesion, social relationships,

social meaning and cultural identity, individual and community well-

being.

Moore’s model of public value9 states that the components of ‘legitimacy and support’

and ‘operational capacity’ must work together for organisations to create public value

(Moore & Khagram, 2004). In this context, the creators of public value- that is the

government agencies that provide infrastructure services- need to build social and

political legitimacy, which requires looking beyond simply addressing legal

obligations, and rather, working with stakeholders to understand the organisations’

wider responsibilities.

Moore’s work has also broached the application of Public Value to the use of

Cost Benefit Analysis (CBA). According to Moore, CBA emerged through the work

of Jeremy Bentham (1890) whose work on utilitarianism determined that only laws

with net positive utility should pass, based on the price each individual would be

willing to pay for ‘imagined’ benefits (Moore, 2014). Moore noted that an alternative

9 Also known as Moore’s Strategic Triangle, the model is focussed on what public managers should do in creating public value as part of corporate strategy, and is often cited in management texts. See: https://sites.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_3_moore_khagram.pdf


approach based on policy and program evaluation was developed by Wholey et al.,

(2010) and takes evaluation away from the perspective of individuals involved in the

appraisal to the collective. Moore considered that a collective approach for measuring

public value is preferable to the individual in order to take account of the institutions,

processes of politics, public policy and government that exist in democratic processes

(Moore, 2014).

A further significant contributor to discourse on public value is Barry Bozeman,

whose work on public value has advocated looking beyond organisational public

management processes, and instead looks at the broader network of analysts, citizens

and policy makers to define public value (Bryson et al., 2015). Bozeman’s work

indicates that public values can be contestable, and that there is a need to find ways to

seek agreement on what public values are in practice.

Considerations of Public Value are embedded in value theory as part of the

theoretical framework for this research (and discussed in Chapter 3). The work on

Public Value outlined above provides a useful introduction to a discussion of the

broader role of institutions within the decision-making framework of public sector

works. Indeed, project appraisal does not sit alone- it sits in a broader system that

includes policy framework, guidelines, governance and political dimensions.

2.8 INSTITUTIONAL FRAMEWORK

The on-going criticisms around the use and appropriateness of economic

appraisal highlight the broader institutional context of decision making. Many

agencies responsible for infrastructure adopt sustainability objectives at a corporate

level and incorporate sustainability targets and indicators as part of corporate reporting

processes. Early planning and decision making has the greatest opportunity to

influence sustainability outcomes, however the consideration of trade-offs between

environmental, social and economic factors is made outside the formal assessment

(Samset & Volden, 2015). According to Vatn (2009), the choice of methods for

environmental appraisal forms part of an institutional structure that determines who

participates in the appraisal, the choice of data used, and the rules for choosing between

alternatives. Institutional structures recognise that policy considerations about the

common good require the perspective of citizens to support trust and engagement

(Vatn, 2005)


2.8.1 Policy Context

Infrastructure agencies operate within a wider system framed within an

economic and political context, based on enabling legislation and government policy.

A study that assessed the translation of broader government sustainability objectives

into decision-making practices for specific infrastructure projects in Western

Australia, showed a clear misalignment between stated government strategy and actual

practice (Bond & Morrison-Saunders, 2011). Institutional design, framed in an

economic and political context, is integral to achieving sustainability objectives that

incorporate participative processes in decision making (Ostrom, 2005; Ostrom, 1990;

Ostrom, 2010).

Policy making involves a range of policy actors operating within a rule-governed

policy institution that exists at a particular time and place (Lubell, 2013). The

application of a complexity lens to decision making aligns with social rationality and

provides a broader context to organisational analysis, recognising the dynamic

relationships and interactions that may exist between various actors with different

world views (Djuric & Filipovic, 2015). A systems model incorporates governance

systems, comprising the institutional framework and rules applying to the system, for

the analysis of government policy to address maters of complexity (Brondizio et al.,

2009). A multilevel representation to analyse the dynamics of governance systems has

been developed by Dillard et al. (2004) using the following layers:

• organisational policy level- the processes and rules within the organisational

policy arena

• organisational field level- organisational social networks and external

interactions, and

• economic and political level- overarching political interface providing

organisational oversight including legislators and regulators.

Applying a systems model, the policy level response needs to be supported

within an institutional framework that takes account of the networks and interactions

of the infrastructure agency and overarching political and economic oversight provided

by legislators and regulators. Whereas sustainability goals are articulated by various

levels of government, and infrastructure agencies adopt these goals in their own


strategic commitments, the organisational framework must also be considered when

addressing investment decision making.

The outcomes of analysis are dependent on the particular options chosen for

analysis and their sequencing, the information provided on various options under

consideration, and the rewards and punishments within an institutional game structure

(Ostrom, 1990). Taking account of the complexity inherent in problems around

environmental management and climate change, the multi-scale nature of decision

choices based around various boundaries should be considered to address decision

making challenges within a sustainability framework.

2.8.2 Boundaries

A further dimension in decision making for infrastructure services are the

(sometimes) artificial boundaries that have been established within and across sectors

to govern and deliver infrastructure works. Institutional boundaries are complex

arrangements that ‘demarcate the socially constructed and negotiated borders between

science and policy, between disciplines, across nations, and across multiple levels’

(Cash et al., 2002). Such boundaries are of fundamental importance in organising

citizens and providing authority, however they can also act as barriers to integrated

outcomes, and may discount values assigned by the wider community. Infrastructure

services, whilst often “owned” by sector-specific delivery or service agencies, exist in

open complex systems that require interactions with other jurisdictions, with other

infrastructure sectors (water-energy, road-drainage, etc) and other layers of

government (state-local). The delivery of infrastructure projects in a system with open

boundaries and a multi-agency context may be hampered where individual

organisations have limited scope to contribute to overall goals and broader community

outcomes envisaged by the delivery entity (MacAskill & Guthrie, 2017).

Three key boundary challenges are the mismatch between institutional

boundaries and bio-geographical system; scale discordance; and cross-scale dynamics

(Cash & Moser, 2000). These boundary issues may be applied to appraisal in front-

end decision making for infrastructure projects and are further described as follows.


1. Institutional fit and bio-geographical system mismatch: A number of

research studies show that institutional boundaries, and the authority of

institutions, do not align with the geographical scale of a particular

environmental problem (Cash & Moser, 2000). As such, institutional

jurisdiction, based on formal legal and regulatory requirements, has no

ability to manage flows and impacts across boundaries that form part of a

wider environmental system. In addition, mitigation works in one part of the

landscape may not be sufficient to address environmental problems that cross

property, institutional or regional boundaries (Saunders & Briggs, 2002).

These inconsistencies create inefficiencies when not appropriately managed.

2. Scale discordance: Scale discordance refers to the mismatch between

problem analysis and the scale required to inform management. Using the

example of climate change models, Cash described the difficulties in

applying global level climate models to local-scale climate assessments.

Fisher (2008) provided an example of this institutional imbalance for water

sector projects in Wales and England that were subject to national-level

decision rules but were locally funded, thus requiring rigorous economic

analysis that would normally apply at the national level. A further mismatch

occurs when the reach of the infrastructure provider does not meet the

requirements at a local level. Hall & Roelic (2015) described the national

energy supply model for the UK that disincentivises the generation of energy

by small-to-medium-scale local energy sources, negating the potential to

achieve greater efficiency and value for local communities. Whilst scale may

be seen as an issue, it also presents an opportunity to utilise expertise from

various scales that may enhance decision making (Cash & Moser, 2000).


3. Cross-scale dynamics: Cross-scale dynamics in environmental systems

refers to the linkages in bio geophysical and social systems recognising that

complex systems involve interacting processes and structures operating at

different scales. Such interactions and dependency also occur in social

(institutional) systems involving various actors in hierarchical political and

decision making systems. When applied to broader decision making in the

public domain, these cross-scale challenges may be considered as ‘wicked

problems’ requiring collaborative network settings, combined with the

appropriate set of tools, strategies, and capabilities (Weber & Khademian,

2008). At the same time, these interdependencies provide opportunities to

generate greater value and improved outcomes in terms of sustainability and

resilience (Rosenberg & Carhart, 2013).

In order to effectively apply sustainability considerations in decision making, the

boundary challenges associated with social and physical networks need to be

addressed. As infrastructure solutions are developed to meet emerging challenges

around climate change and other complexity issues, considerations of boundary

dynamics need to be incorporated into analysis.

2.8.3 Governance and regulation

Regulatory agencies provide input to decision making based on legislative

requirements in areas such as environment, health and or economics. Regulatory

oversight provides a strong governance framework for decision making by public

sector infrastructure providers, taking account of monopoly powers. However, in

practice, the role of the regulator may be based on incomplete understanding of the

key issues and risks. Regulators may not be aware of the full array of alternative

investment opportunities available and regulatory decisions may not be cognisant of

the interests of key user groups (Ananda, 2014). In addition, the time frames that

regulators adopt to assess proposals is limited, and does not take account of

considerations of long-term intergenerational equity that strong sustainability

assessment would require (Bond & Morrison-Saunders, 2011).

In the UK, Helm (2015) identified the need for broader institutional reform in

the water sector, based on current inefficiencies and backlog in investment by various

institutions operating across the water cycle. A system approach, recognising the inter-

relationships between water supply, catchment management, flood defence, land use


planning, discharge controls and agricultural management would require a review of

the institutional framework including the boundaries of water companies and

legislative review. In Australia, Ananda (2014, p. 134) stated that ‘current settings in

the urban water sector are ill-equipped to tackle climate uncertainty and it is important

to reconfigure the institutional settings – regulatory and planning frameworks – to

embed flexibility and to support efficient infrastructure provision in the urban water

sector’.

Using the example of the energy sector, Bolton & Foxon (2015) identified the

need to transition to new models of governance and regulation to adapt to low carbon

solutions using renewable technologies in order to address anthropological climate

change. Industry regulation plays a significant role in maintaining quality standards

and maintaining price affordability, but a key challenge for regulators in transitioning

to new models is the need to take account of wider public interest and the benefits that

are conveyed in adopting new systems.

2.9 THE RESEARCH QUESTIONS

The literature review clarified two key research questions. The first research

question (and associated sub-questions) sought to initially understand the linkage

between the sustainability commitments of infrastructure providers and actual practice

in investment decision making. The literature review highlighted that, across industry

and government, there is a renewed commitment to sustainability based on the UN

Sustainability Development Goals. However, CBA continues to be advocated in

industry guidance through regulatory activities and CBA remains integral to the

development of business cases and the justification of infrastructure projects. There is

substantial commentary, and indeed division, as to whether CBA aligns with

sustainability practice and takes account of the wider community and environmental

benefits that infrastructure has the potential to provide. Hence, the first Research

Question (RQ1) addresses this matter:

RQ1 Do corporate sustainability goals stated by infrastructure agencies

translate to project level decision-making in the pre-investment stage for

infrastructure projects?

• Do infrastructure agencies have corporate sustainability goals/ targets;


• What are the processes and guidelines adopted in investment decision

making;

• Are corporate sustainability goals captured in investment decision making;

• Is sustainability value captured (weak or strong sustainability);

• What factors support a sustainability framework; and

• What are the barriers to incorporating sustainability in decision making?

Following on from the first Research Question, the research also addressed the

need for a sustainability approach to provide an integrated, systematic assessment to

fully capture the environmental and social dimensions of sustainability. Many

infrastructure decisions are complex, involving multiple dimensions of value, and the

decisions made may potentially impact on a range of community members over long

time frames. However regulatory requirements and institutional requirements have the

potential to discount opportunities for sustainable outcomes. A sustainable approach

seeks to leave a positive legacy for future generations. The second research question

sought to discover the optimal approach to sustainability assessment, given the

institutional factors that govern decision making:

RQ2 What is an optimal system approach to support project selection and

decision making for infrastructure projects within a strong sustainability

framework?

• How does the regulatory environment impact on sustainability

considerations;

• What are the tools used to support sustainability goals and how effective are

these;

• What other system elements (guidelines, training, resources) are required to

support analysis processes;

• How are public participation models used and how effective are these?

2.10 SUMMARY AND IMPLICATIONS

The literature highlights on-going questions, together with suggested remedies

that address current appraisal models forming the basis of decisions on whether or not

infrastructure projects proceed, and the form that they take. In Australia, the failures


in decision-making processes have been well documented in the media, with recent

examples including the proposed East West Link project in Victoria (now abandoned),

Brisbane’s Western Corridor pipeline project in Queensland (abandoned), the

Traveston Crossing Dam project in Queensland (abandoned) and numerous other

major public works.

The literature review forms the basis of a preliminary conceptual model that

addresses the topics outlined in the research questions and provides the first step to

this research, using an integrated inductive/ deductive research approach. The

conceptual model is useful in framing the research design outlined in Chapter 5

(Research Design). As such, the following elements with the investment decision-

making process require further examination through the next stages of the research:

• The application of sustainability goals stated by infrastructure providers;

• Problem definition and option generation using investment management

guidelines as evidenced by “best practice” investment management

processes;

• Analysis tools that may broaden current use of Cost Benefit Analysis,

including the potential to incorporate Multi-Criteria Analysis and other

analysis methods;

• The political and institutional systems that impact on the decision-making

process;

• The impact of regulatory approval and governance requirements in

achieving sustainable outcomes;

• Consideration of boundaries (such as jurisdictional or geographical) in order

to achieve optimal sustainability outcomes;

• Participation processes incorporating community and institutional

stakeholders.

Figure 2.4 provides the initial concept model forming the basis of the research

design.


Figure 2.4. Conceptual framework for this research

The literature review reveals that despite the shortcomings of CBA, it continues

to be mandated in public sector practice for investment decision making. Hence, the

conceptual framework for the research has adopted a practical response that

acknowledges the on-going use of CBA, but also takes account of the on-going

questions that arise on the ability of CBA to address sustainability. The literature

review, and the conceptual framework that has been developed form the basis of the

research design that is described more fully in Chapter 5. The research design has used

a staged, mixed methods approach based on empirical evidence of current practice.

Whilst the conceptual framework shown in Figure 2.4 has been useful in informing the

research design, the formulation of the model for incorporating sustainability in

investment decision making that is presented in Chapters 7 and 8 provides a markedly

different framework. The following chapter (Chapter 3) provides the theoretical

framework for this research, with further discussion on the topic of public value as it

applies to this research.

Institutional framework and sustainability commitments

Participative Model

Problem Definition and Benefit Identification

Organisational factors

Rules and process

Boundary challenges

BUSINESS CASE

CBA Broader Assessment


Chapter 3: Theoretical Framework

3.1 INTRODUCTION

The previous chapter has set out some of the key issues and inconsistencies that

emerge for infrastructure decision making in that:

• Infrastructure is a public good with some known, but many unknown/

intangible values that may contribute to a sustainable future;

• In line with the UN Sustainable Development Goals, and statutory

requirements, infrastructure agencies continue to adopt sustainability

commitments at a corporate level;

• Much work in being done to incorporate sustainability in the design and

construction processes for infrastructure delivery using infrastructure

sustainability rating tools such as ISCA; and yet

• In the critical stage of business case development, standard financial

analysis tools continue to be mandated and applied, leading to significant

impediments to sustainability outcomes.

The previous chapter contains a strong emphasis on the tools that are applied

within the decision process, however the literature also suggests that adopting a

systems approach broadens the decision context to the consideration of the

organizational framework that supports decision making. A systems approach draws

on complex systems theory, and it will be seen that sustainability aligns with complex

systems theory thinking. A sustainable approach understands that infrastructure forms

part of open systems that are inter-related with other systems and that these are not

well understood when applying simplistic market-based models for analysis. At the

same time, public management processes involve decisions around expenditures of

public money, and so high degrees of transparency, accountability and good

governance by public sector officials is expected by citizens. Taking account of these

aspects, this section outlines the theoretical framework that underpins this research.


3.2 THEORETICAL FRAMEWORK- CONSTRUCTS

The role of the theoretical framework is to define the constructs relating to the

research area together with the relationship between those constructs (Kerlinger,

1973). Theory provides guidance on what information to present, and ultimately, how

to interpret the information. Maxwell (2012, p. 54) proposed that the theoretical

framework, and the ‘systems of concepts, assumptions, expectations, beliefs and

theories’ for a given study, may be represented by a concept map that, in turn, informs

the research design. Using Maxwell’s approach, I have developed a concept map to

illustrate the theories that form the basis of this research, and further discussion of

these theories, and their inter-relationship follows.

In philosophy, value theory considers two basis positions: the monist position

would assert that value can be viewed as a single, instrumental value whereas the

pluralist position would argue that intrinsic value incorporates multiple values

(Schroeder, 2016). Value theory considers questions of how to value happiness, or

how to value knowledge. On the question of which option is better: murdering one

person or allowing two people to be killed, Schroeder introduced the concept of Agent-

Relative Value, where decisions are relativised to the agents involved in the decision

in terms of what is best for the agents involved. Public value theory takes these

considerations away from individual responsibility to a collective responsibility.

On the question of ‘what do we mean by value’, Benington (2009) referred to

classical economics, which distinguishes between exchange value, labour value and

use value. Rational/public choice theory typically focuses on exchange value. At the

core of the decision-making process addressed by this research, is the concept of

assigning value within a framework that seeks to apply rationality to problems that

also have a high level of complexity. Using the concept map approach proposed by

Maxwell, Figure 3.1 provides the theoretical framework for this research. In the

following discussion, the topics of rationality and complexity theory are firstly

presented, and then a further discussion around public value shows how these two

theoretical aspects tie together.


Figure 3.1. Theoretical Framework

3.2.1 Rationality and public management/ decision making

Traditional approaches to organisational management and practice favour formal

rationality and seek to simplify the presentation and analysis of facts and data, often

reducing problems to a linear model within boundaries that may be defined by

jurisdictional borders and not the wider environment impacted by works. The public

nature of infrastructure projects requires decision making for investment appraisal to

align with considerations of rationality.

Organisations are open systems, operating beyond organisation boundaries in a

wider social and cultural context that shapes operational practices and procedures

(Silverman, 1970). Within the context of organisations, organisation and management

theory further seeks to respond to real-world situations and explores decision theory

in the context of the need for a systematic approach to analyse facts and data. Indeed,

Gabor (1976, p.280) stated that the inclination to apply a mechanistic approach in

management theory, and to ensure a perception of rigor and verifiability, means that

‘in practice decision makers will not admit to the existence of emotional or intuitive

Sustainability in Investment

Decision Making

Systems theory

Sustainability theory

Complexity theory

Rational Choice Theory

Stakeholder Theory

Organisation and

Management Theory

Decision Theory Public

Administration Theory


factors in their decision calculus, preferring to justify their choice on narrow grounds

associated with logic and science.’ As an extension of management theory, public

administration theory builds upon the history of civilisations that have been shaped

through collective management undertaken in a public setting. Frederickson et al.

(2012) presented eight areas of study within public administration: political control;

bureaucratic politics; institutional theory; public management; post-modern theory;

decision theory; rational choice; and governance. Of these, decision theory and rational

choice theory deal with complexity whereby decision making is often based on limited

or imperfect information and uncertainty, with decision making being guided by rules

and cues that ensure that past considerations influence decision processes. Gabor

(1976) discussed the reliance on ‘rationality’ in public sector decision making,

whereby there is a focus on measurable facts (that includes cost-benefit analysis). This

often excludes non-factual elements, such as ethical (value) statements that may be

deemed as ‘unscientific’ and ‘irrational’.

Stakeholder theory acknowledges the ‘multiplicity’ of groups that have an

interest in organisational operations and seek consideration of broader interests in

managerial decisions. The theory also includes consideration of the balance between

stakeholder and shareholder interests in decision making, whereby shareholder

interests often predominate and favour reliance on management accounting systems

(Rausch, 2011). Gladwin et al. (1995) proposed the need for a transformational shift

in management theory and practice from embedded thinking based on ‘technocentric’

or ‘ecocentric’ factors to a new ‘sustaincentic’ approach that shifts thinking away from

considerations of growth and efficiency to limitation and equity as part of

sustainability theory.

According to Dillard et al. (2004), formal rationality favours economic

efficiency and is value-free. Formal rationality is characterised by a focus on

calculations and financial accounting, and seeks to limit inputs from actors. Social or

substantive rationality provides an alternative approach that places greater weight on

alignment with the substance of values and acknowledgement that decisions need to

consider the social institutions that promote various values. A ‘tension’ exists between

the two approaches to rationality and, given that decision making involves both fact

and value, Gabor (1976) identified that (formal) rationality approaches consider the

existence of broader values as irrational, and unverifiable. Rationality is ‘bounded’ by


uncertainty and imperfect information that is found in real world situations, and this

may lead to decision making founded on selective information and satisficing

behaviour (Simon, 1979). As such, rational decision-making approaches are

appropriate where clear supporting information may be sourced to evaluate

alternatives, however, ‘in decision situations affected by uncertainty, ambiguity and

the absence of prior objectives, rational approaches might not be appropriate’

(Gutiérrez & Magnusson, 2014).

A key theoretical concept is the need to apply a rationality frame to any emerging

model for infrastructure decision making. However, within a rationality frame,

sustainability problems involve an array of actors addressing complex systems

whereby decisions have long-term consequences.

3.2.2 Complexity

Complexity theory, and the consideration of complex systems, is also proposed

as a lens that may effectively capture sustainability considerations and challenge

conventional economic thinking. A complexity approach takes account of the dynamic

connections and interactions between economic, social and ecological systems.

According to Foxon et al. (2013, p. 202):

The key insights from complex systems thinking are that economies are open,

dynamic systems, not in equilibrium, and are made up of diverse agents who

lack perfect foresight, but who are able to learn and adapt over time.

Checkland (1994) recognised that problem solving in both industry and the public

sector may be assisted by models developed for hard systems thinking to achieve

organisational goals as part of complexity theory. This approach is useful where ‘goals

and measures of performance were clear cut, communications between people were

limited and prescribed, and in which people in question were deferential to authority

that laid down goals and the ways in which they were to be achieved’ Checkland (1994,

p. 80). Checkland contended, however, that this model cannot effectively reflect real

life in 'richer' models of organisation and management and for more complex

problems. In this case, Soft Systems Methodology (SSM) theory enhances systems

theory by acknowledging the complexity of a given situation and recognising the

broader system context with considerations of the values and beliefs of various players

within the system. Zexian & Xuhui (2010) acknowledged the contribution of

Checkland’s system thinking model (initially developed in the 1970s) and built upon


the theory to include notions of the objectivity of social reality through the concepts

of ‘self-organisation’ and ‘adaptive evolution’.

3.2.3 Complex Adaptive Systems

Complexity theory and rationality/ public administration theory have been

brought together through the Complex Adaptive Systems (CAS) framework discussed

by Rhodes et al. (2010, p. 9) in the book Public Management and Complexity Theory.

CAS models provide a means to ‘identify those agents in a system that act and interact

in the pursuit of their individual or collective objectives, and to study how agent

behaviour and the interdependencies among agents result in systemic outcomes’. The

CAS framework provides a basis for description and analysis of decision making in

public sector cases and the adaptive capacity of these complex systems. A researchable

‘6+4’ analytical framework developed by Rhodes et al. builds on work by various

researchers in organisational complexity and was further developed in the course of

cross-case empirical research work discussed in the book. Rhodes et al. (2011)

identified the four unique CAS dynamics that are integral to self-organisation and

adaption as path dependency adaptation bifurcation and emergence. The six core

components of the CAS model (as illustrated in Figure 3.2) are:

• System (consideration of the boundaries that separate the system from its

environment);

• Environmental factors;

• Environmental rules;

• Agents;

• Processes; and

• Outcomes.


Figure 3.2. CAS framework (Rhodes et al., 2010, p.11)

The CAS framework acknowledges the interactions between elements in a

system and the path dependencies. The CAS framework provides a theoretical model

for research focused on the incorporation of sustainability in investment decision

making by infrastructure agencies. It acknowledges that processes/tools and rules

alone do not offer the full solution to complex problems. Using the CAS framework,

research inquiry may be broadened to consider the political and governance

dimensions of decision making, and the roles of various agents in the decision-making

process including stakeholders and community users.

3.2.4 Rationality, Complexity and Value

Herbert Simon (1916-2001) is known for his work on bounded rationality, and

was awarded a Nobel Prize in economics in 1978. Noting an understanding of decision

making within the economics profession that was based on perfect information, Simon

(1979) sought an acceptance of behavioural aspects that emerge in real world practice

within the ‘bounded rationalism’ theory. This consideration of relationship between

rationality and economics remains relevant to current discourse as investment decision

making is also referred to as economic evaluation. Critiques on the use of market

approaches may be traced backed to Aristotle10. More current research advocates a

need for critical reflection on the current preference to base the governance of natural

10 Aristotle discussed concepts of oikonomike (use or consumption) and chrematistike (acquisition or production).


systems on market-based instruments (MBIs) (Gómez-Baggethun & Muradian, 2015).

Whilst MBIs were initially used to successfully support conservation efforts, their

legitimacy in a wider decision-making context is questioned, particularly in

consideration in the alignment of market and ecosystem boundaries, and in

understanding the broader ideological and socio- political processes.

In exploring the evolution of value theory, Miller (2017) pointed to the teachings

of Aristotle and Adam Smith. Both Aristotle and Smith expressed similar views on

value in terms of value in exchange and value in use. Whereas Aristotle’s approach

and methods formed the foundations of social economic value theory, Smith’s work,

developed in the industrial age with limited understanding of the scarcity of resources,

focused on empirical calculations and scientific method. Smith’s theory, based on his

most famous work, Wealth of Nations, continues to inform current practice, and the

concept of the ‘invisible hand’ influences political thought that favours market–led

processes over government intervention and regulation. However, ‘classical economic

value theory accounts for the material aspect of value (value in exchange) and the

choice aspect of value (value in use) but falls short in accounting for the intangible

aspect of value’ (Miller, 2017, p. 177). Emerging theory on value proposes the need

for value co-creation, referencing the model of the ancient Greek agora (public sphere),

where value is determined through collaborative processes that go beyond measures

of maximum utilisation, and instead explore deeper understandings of value.

According to the Institute for New Economic Thinking, ‘traditional economics

is failing us’.11 In the book, The Econocracy- the perils of leaving economics to the

experts, Earle et al. (2016) asserted that economics as a discipline has evolved into a

technocratic process, ignoring the complex political and social processes that

accompany decisions. By applying the ‘blackbox’ approach to economic decision

making, the fundamental assumptions and judgements that underpin the technical are

hidden. This view was previously put forward by Spash (2009), who advocated that

economic thinking should be broadened to capture notions of public participation and

empowerment.

Pirgmaier (2017) challenged the application of the ‘old paradigm’ of

environmental economics that forms the basis of benefits modelling within economic

11 Refer to https://www.ineteconomics.org/about/our-purpose)


appraisals, and called for new approaches to economics that support social systems

and sustainability transitions. Pirgmaier’s paper provided a comprehensive review of

how economics applies to interrelated ecological and economic systems, and

consequently the following diagram (Figure 3.3) has been produced to summarise the

concepts put forward by Pirgmaier.

Figure 3.3. The evolution of environmental economics (based on Pirgmaier (2017))

These criticisms, and the call for new models, align with an on-going

philosophical debate that challenges the more ‘mainstream’ practice of environmental

economics that forms the basis of analysis within CBA. Environmental economics is

grounded in considerations of market failure, whereby the economic valuation of

externalities accounts for environmental costs and benefits within an economically

efficient boundary. On the other hand, ecological economics and socio-ecological

economics incorporate a systems view of the environment and take account of impacts

to future generations, recognising that some actions may be irreversible and that wider

community values are difficult to monetise. According to Foxon et al. (2013),

economic analysis based on marginal costs and marginal benefits is inadequate to fully

New Models

Models acknowledge complexity of

problemsOpen systems with

imperfect knowledgeEconomic, natural and social systems have equal weight

Social/ bounded rationality

Ecological Economics

Models based on steady state economics

Assumes exchanges across system

boundariesEconomics remains

dominant Formal rationality

Environmental Economics

Models based on neoclassical economics

Assumes closed systems

Economics is the dominant frame Formal rationality


address current challenges, such as climate change and loss of biodiversity. Ecological

economics continues to be aligned with sustainability assessment, however an

emerging body of work is critical of the limitations of ecological economics to

incorporate a wider spectrum of social values and, critically, to model the integrated

aspects that a true sustainability assessment seeks to interrogate. The emerging field

of complexity economics is being presented as an opportunity to better understand

these ‘wicked problems’ by acknowledging that economies are not perfect or static,

and that they continue to evolve and are ‘organic, and full of messy vitality’ (Arthur,

2013, p. 19).

For this research, the concept of public value, discussed in the previous chapter,

has been adopted as the over-riding lens for addressing the research questions.

Benington (2009, p.246) noted that public value:

is beginning to emerge as an alternative to both rational/public choice theory

and theories of public goods in providing a conceptual framework to inform

and inspire not only reform and improvement of public services, but also a

deepening of the democratic and deliberative process.

Public value presents the opportunity to assess projects beyond a reconciliation of costs

with a mathematically derived exchange value, and rather, provide a means to assess

the wider value that infrastructure services create.


Chapter 4: Water Management in Australia

4.1 INTRODUCTION

In addressing the current problems and potential solutions that form the basis of

the research questions, greater clarity and focus can be achieved through the

investigation of a single sector- the water sector- taking account of the specific

structural and governance models that are in place for that sector. Furthermore, the

water sector in Australia is subject to policy, legislative and regulatory frameworks

that set it apart from other infrastructure sectors. Of note, the economic regulatory

processes that dictate the planning and pricing decisions of water service providers has

significant implications for sustainability outcomes. An Australian context was

adopted for this research, taking account of the broader policy settings that apply

within a single national jurisdiction, whilst also acknowledging that state based

legislative and regulatory processes also apply. The literature review highlighted that

these institutional factors are an important dimension of the decision-making at a

project level.

A key opportunity for the water sector is the transition to water sensitive cities

through practices such as integrated water cycle management (IWCM) or ‘green

infrastructure’. These concepts present opportunities to meet sustainability challenges

around climate change and extreme weather events particularly drought and flooding.

Integrated water projects present opportunities to provide a range of benefits including

water quality improvements, flood protection, and the provision of alternative water

sources. The opportunities and issues relating to IWCM are addressed further in this

chapter.

The literature and theory supporting this research applies more broadly across

all infrastructure sectors, as the concepts and processes associated with both

sustainability and business case development have been shown to be common across

all sectors (Section 2.1.2). Furthermore, a ‘systems of systems’ model for

infrastructure recognises the interdependencies that exist across infrastructure sectors

that, where acknowledged, may contribute to enhanced performance and outcomes to


meet the challenges of an uncertain future (Hall et al., 2016, p. 8). Key interconnections

are evident between sectors such as energy and transport, energy and water, energy

and waste, and increasing, ICT and water/ transport. However, governance and

management of infrastructure remains a function of sector-specific organisations, and

in the case of water management, specific functions such as water supply and water

treatment may be further segregated through organisational responsibilities.

Following is a brief description of the water industry within Australia. This

chapter also presents an outline of a key sustainability challenge for the water industry

around integrated water resource management.

4.2 WATER INDUSTRY IN AUSTRALIA

Prior to 1788, indigenous use and management of water was based on complex

social arrangements founded on ecological uses. In the book Dark Emu, Bruce Pascoe

described the water management practices of aboriginal Australians whereby dams

and irrigation trenches were built, and well systems were used to support agricultural

practices and water supply (Pascoe, 2014). Access to water was ‘regulated through

social convention and rules differed across the continent in response to abundance and

reliability of resources’ (Jackson et al., 2012, p. 58). According to Pascoe, the story of

aboriginal water management practices is only now emerging, and more

archaeological surveys and research is required to better understand aboriginal water

management systems.

The history of water management following European settlement may be

categorised into four paradigms that are briefly summarised in Table 4.1 (from McKay,

2007).


Table 4.1

A history of water management in Australia from Mackay (2007)

Paradigm 1 From 1788, Terra Nullius meant that the law of England applied

to the colony and riparian laws allowing access by landowners

adjacent to rivers and unrestricted access to groundwater. With

growth and increasing demand for water, each state became

responsible for allocating surface water.

Paradigm 2 In this paradigm, the role of the states was significant in bringing

forward large water schemes and, following federation, the

Australian government provided funding to many of these

schemes. Growth in dam storages occurred over the 1900s with

the greatest increase occurring in the period 1960-1979. The role

of the Australian government was unstructured and issue-

driven.

Paradigm 3 Paradigm 3, from 1994, represents the increased role of the

Australian government in seeking structured reform in water

management. National competition policy allowed the full or

partial sale of public entities. During this period,

Environmentally Sustainable Development (ESD) principles

were introduced to water management through state legislation.

Paradigm 4 The current paradigm, beginning in 2004, with the introduction

of the National Water Initiative (NWI) is marked by a drive for

more efficient, productive use of water.

The Intergovernmental Agreement on a National Water Initiative (NWI) sets out

to achieve a nationally compatible market, regulatory and planning based system that

manages surface and groundwater resources for rural and urban use and states that:

‘governments have a responsibility to ensure that water is allocated and used to achieve

socially and economically beneficial outcomes in a manner that is environmentally

sustainable’ (Council of Australian Governments (COAG), 2004). The NWI seeks to

establish a common set of principles for managing water across Australia, and includes


provisions for urban water reform and the principles of integrated urban water cycle

planning and management (Clause 92 (iv)).

The governance framework for the water sector in Australia is complex, with

over 14 types of legal forms of business and different structures in each state. Some

states have numerous water authorities including Queensland (76), Victoria (21) and

New South Wales (96), Western Australia has three authorities and South Australia,

Northern Territory and ACT each have one. Hence water entities range from large

corporations with state–wide responsibilities (SA Water) to smaller divisions within

local councils (such as Toowoomba Regional Council). Table 4.2 presents a

breakdown of the number of types of water entities across Australia.


Table 4.2

Water Service Providers by State in Australia

State/Territory Number of Service Providers

Details

Queensland 7612 Providers include bulk water service providers (Seqwater and SunWater) and drinking water service providers (Queensland Urban Utilities in the wider Brisbane areas with the remainder largely managed by local governments). Overall, these comprise:

• 2 State Owned statutory authorities • 2 Council owned statutory authorities • 52 Council Service providers • 17 Aboriginal and Torres Strait Island

council service providers • 3 Other (eg private providers, state entity)

New South Wales

9613 Across the state, there are: • 4 Metropolitan Utilities (Sydney Water,

Hunter Water, Water NSW and Hawkesbury Council)

• 92 Local water utilities in non-metropolitan NSW (reduced from 105 in 2016 due to local government amalgamations).14

Australian Capital Territory

1 Icon Water Ltd is an unlisted public company owned by the ACT Government, and manages the water and sewerage assets of the ACT.

Victoria 21 Melbourne Water provides bulk water and bulk sewerage services to three water corporations in the greater Melbourne Metropolitan Area. These are City West Water, South East Water and Yarra Valley Water. Thirteen water corporations provide services to urban areas of regional Victoria. A further four water corporations provide rural water services.

South Australia 1 SAWater is the state’s single water service provider

Western Australia

3 Water Corporation (WaterCorp) Busselton Water Aqwest/ Bunbury Water Corporation

Northern Territory

1 Power and Water is the Territory’s water service provider

12 From DEWS’ Queensland water and sewerage provider performance comparative report: Financial Year 2015-2016 https://www.dews.qld.gov.au/__data/assets/pdf_file/0009/389448/service-provider-comparative-report-2015-16.pdf 13 Note that on-going industry reviews and amalgamations mean that this figure is often changing. 14 From http://www.water.nsw.gov.au/__data/assets/pdf_file/0007/716146/2015-16-nsw-water-supply-and-sewerage-performance-monitoring-report.pdf


The role of the private sector in providing water services is also growing. In New

South Wales, the Water Industry Competition Act 2006 enables private companies to

enter the urban water market and provide services in areas of reticulated water,

recycled water and sewerage services.

Separate legislation applies to each state and territory and the legislative

instruments define different arrangements and obligations. Despite commentary

calling for change since the 1990s, the urban water industry’s institutional framework

has changed little (Brown & Farrelly, 2009). State water legislation provides

commitments to environmental sustainability, with each state adopting different

definitions of environmentally sustainable development. At the organizational level,

broader cultural factors guide the understanding of sustainability and the practices that

are adopted to incorporate sustainability (McKay, 2007).

The regulatory and planning framework for the water industry in Australia is a

key determinant for decision making in relation to infrastructure projects. With a range

of government agencies and water authorities involved in decision making, there is

little coordination between agencies and regulators, with implications for

infrastructure projects and the ability to achieve efficient decisions (Ananda, 2014). In

the state of Victoria, regulatory governance is provided by:

• Department of Environment, Land, Water and Planning (DEWLP)- water

resource planning;

• Department of Treasury and Finance (DTF) – financial management;

• Department of Health- safe drinking water;

• Essential Services Commission (ESC)- pricing and performance;

• Environmental Protection Agency (EPA)- environmental protection; and

• Energy and Water Ombudsman – dispute resolution.

Regulatory approvals may be required for significant projects, in addition to a

requirement for water businesses to submit water plans to the ESC covering a five year

regulatory period as part of the price determination that sets tariffs and revenue

streams. According to Ananda (2014) the regulatory process provides the advantage

of cost certainty, but is an impediment to allowing some flexibility in the delivery of


capital works, and to adapt to changes such as climate and weather events. Project

decisions may also be made outside of the regulatory process and rigorous evaluation

processes, as witnessed by the Victorian Desalination Plant and the North-South

pipeline which were initiated at the political level in response to a period of drought

and low dam levels.

Internationally, water management practices are determined by the institutional

framework of each jurisdiction. In the UK, economic regulation is provided by a

single regulator (OfWat) whose functions may act as a model for reform of regulatory

functions in Australia (Frontier Economics, 2014). Even so, Helm (2015) identified

the need for broader institutional reform in the water sector in the UK, based on

inefficiencies and backlogs in investment around the current functions and obligations

of various institutions operating across the water cycle. A system approach,

recognising the inter-relationships between water supply, catchment management,

flood defence, land use planning, discharge controls and agricultural management

would require a review of the institutional framework including greater ability to work

across the boundaries that apply to water companies together with legislative review

(Helm, 2015).

4.3 WATER SECTOR ADVOCACY AND SUPPORT

The Water Services Association of Australia (WSAA) is the peak body of the

Australian urban water industry representing 31 members and 34 associate members

that provide water and waste water services to approximately 16 million Australians

together with industrial and commercial enterprises. In order to achieve its vision to

for Australia’s water utilities to be:

‘leaders in innovative, sustainable and cost effective delivery of water

services, WSAA promotes knowledge sharing, networking and cooperation

amongst members. WSAA identifies emerging issues and develops industry-

wide responses. WSAA is the national voice of the urban water industry,

speaking to government, the broader water sector and the Australian

community.’15

15 Refer to https://www.wsaa.asn.au


The Australian Water Association (AWA) represents some 4,500 individual and

over 600 corporate members including water utilities, contractors, consulting firms,

researchers and suppliers. Through its annual conference Ozwater, together with a

range of publications, training and workshops, AWA sees its role as providing ‘the

platform for our water experts, practitioners and businesses to share information, grow

expertise and collaborate effectively’16.

4.4 INTEGRATED WATER CYCLE MANAGEMENT

Integrated Water Cycle Management (IWCM) emerged in the 1990s as model to

challenge conventional water management practices for water supply, sewerage and

drainage and incorporates both demand and supply management with the consideration

of non-traditional water resources, and a focus on fit-for-purpose use (Mitchell, 2006).

More recently, the concept of Water Sensitive Cities supports a transition to new

modes of managing water including the adoption of decentralised systems and

recognising water as a key resource within the water-food-energy nexus (Floyd et al.,

2014). These models present opportunities to meet sustainability challenges around

climate change and extreme weather events particularly drought and flooding, and

respond to the limitations of traditional forms of urban water management to meet

these challenges. IWCM also incorporates initiatives to better manage stormwater,

considering it as a resource providing a range of benefits as an alternative water source

rather than traditional approaches based on conveyance and centralised disposal

(Mitchell, 2006). A range of benefits associated with IWCM or ‘green infrastructure’

are listed in Table 4.2 (from Symons et al., 2015).

16 Refer to https://awa.asn.au/AWA_MBRR/About_Us/AWA_MBRR/About_AWA/About.aspx?hkey=7dbb8cb0-9b64-44fb-9ea8-85942692802c


Table 4.3

Benefits associated with IWCM or 'green infrastructure (from Symons et al., 2015)

Social Environmental Economic

Human health and well-being

• Physical • Social and psychological

Community Cultural Visual and aesthetic

Climatic modification • Temperature reduction • Shading • Wind speed modification • Evapotranspiration

Climate Change mitigation

• Carbon sequestration and storage

• Avoided emissions (reduced energy use)

Air quality improvement

• Pollutant removal • Avoided emissions

Water cycle modification

• Flow control and flood reduction

• Canopy interception • Soil infiltration and

storage • Water quality

improvement Soil improvements

• Soil stabilization • Increased permeability • Waste decomposition

and nutrient cycling Biodiversity

• Species diversity • Habitat and corridors

Food production

• Productive agricultural land

• Urban agriculture

Commercial vitality Increased property values Value of ecosystem services

The difficulty in broadening assessment to take account of wider benefits beyond

institutional boundaries may, in part, be linked to the rules and regulatory processes

applying to the water entities that play a key role in IWCM. Whilst regulatory

oversight provides a strong governance framework for decision making, in practice,

the role of the regulator may be based on incomplete understanding of the key issues

and risks, and regulators may not be aware of the full array of alternative investment

opportunities available and regulatory decisions may not be cognisant of the interests

of local user groups (Ananda, 2014).


In order to address these boundary challenges, institutional governance

structures need to acknowledge that water resource management operates within an

environment that may be characterised by a multi-layered organisational framework

(operational, managerial and political) working within a broader system that extends

beyond organisational boundaries, creating value and impacting on the wider

community (Reidy et al., 2016; Dillard et al., 2004). A systems approach considers

infrastructure as more than sector-specific assets, and instead considers system

components and the relationship between them and recognises the dynamic

relationships and interactions that may exist between various actors within the urban

context with different world views. The opportunity to advance water projects that

align with broader sustainability objectives requires that decision making processes,

decision rules and institutional frameworks are better aligned, requiring concerted

efforts across the many physical and social boundaries that apply to these infrastructure

systems.

Across Australia, stormwater management typically resides with local

government. In March 2015, the Australian Government, through the Senate

Environment and Communications References Committee held an inquiry into

stormwater management. The inquiry attracted numerous submissions that

acknowledged the importance of stormwater in its contribution to achieving IWCM

outcomes and the involvement of institutions beyond local government. A key

recommendation from the Senate Committee was the need for all states and territories

to work together to develop a national policy around stormwater (a National

Stormwater Initiative). The Committee found that ‘the current approach to stormwater

management has various apparent weaknesses’, and that better planning and well-

targeted investment is required to avoid costs associated with flood impacts and

recovery, increased insurance premiums, and riparian management (Commonwealth

of Australia, The Senate, 2015).

Several submissions to the inquiry highlighted the need for improved guidance

in investment decision making to support alternative water management systems. The

Australian Academy of Technological Sciences and Engineering (ATSE) (2015)

stated:

Australia needs to develop robust economic evaluation models that can assess

the total community costs and benefits of complex stormwater systems. The


present models are too narrow in scope and cannot assess the true value of

investments made into green stormwater systems that provide high amenity

value to our cities while delivering on basic water services.

A number of submissions to the inquiry also addressed the weaknesses in current

institutional arrangements for managing various aspects of the water cycle. The

Committee found that the primary responsibility for stormwater often falls to local

governments, which are limited in their ability to make decisions that are outside their

immediate area of responsibility and can be affected by actions, or inaction, in

neighbouring local government areas. On the basis that integrated water management

projects have wider benefits, beyond institutional boundaries, and benefits are not

easily quantified, investment in stormwater harvesting is problematic. The Australian

Water Association (AWA) submitted that management of stormwater should be

integrated into the role of all water authorities noting that ‘the skill sets involved in

management and maintaining water and wastewater assets are very similar to those

required to manage and maintain stormwater assets’ (Australian Water Association,

2015).

According to ATSCE, ‘Australia needs more sophisticated governance

frameworks for managing multi-functional stormwater assets to transition its cities to

more liveable places’ (ATSE, 2015). Integrated approaches to water basin planning

are also hindered by the separation of management functions across and within various

institutions responsible for functions such as water supply, wastewater, stormwater,

groundwater, catchment management, and aquatic ecosystems (CSIRO, 2015).

The Senate Committee found that ‘the regulation of water monopolies by state

governments prevents those entities from considering how better stormwater

management outcomes could be achieved’. The Committee identified a need for water

agencies to have ‘broader objectives’ to support best practice in integrated water

management (Commonwealth of Australia, The Senate, 2015).

4.5 SUMMARY

This chapter has provided a brief outline of the background and statutory

framework for the water industry in Australia. The structure of the water industry and

the role of regulation are significant factors in this research as the literature review has

identified the barriers that institutional arrangements may present in achieving more


sustainable outcomes. In order to ground the academic discourse into real practice, the

2015 Stormwater Inquiry has highlighted the issues around investment decision-

making, and the barriers to bringing forward innovative new and emerging practices

in IWCM. As IWCM seeks to deliver more sustainable outcomes based on making

cities more liveable and resilient, the challenges to effectively build and defend a

business case for IWCM initiatives remains a challenge. The following chapters

present the research design, results and outcomes of the research based on an in-depth

study of practice of water industry experts.


Chapter 5: Research Design

5.1 INTRODUCTION

This chapter sets out the design for the research based on the research questions.

The preliminary model developed through the literature review was used as the starting

point to further understand what methods are used in current practice, and how practice

may better incorporate sustainability A mixed methods (quantitative plus qualitative)

study using an integrated inductive/ deductive research approach was identified as the

most appropriate method to address the two research questions. In doing so, a

sequential approach allowed the inclusion of a ‘hold point’ between the quantitative

and qualitative stages to assess whether the proposed research design remained

appropriate, and whether adjustments were required in the design of the more

substantive qualitative study. This chapter presents the research design and the

theoretical considerations that underpin the design including the methodology, choice

of participants and approach to analysis of research data. The following chapter

(Chapter 6) presents the outcomes and results of the research process.

5.2 METHODOLOGY AND RESEARCH DESIGN

5.2.1 Methodology

Creswell (2003) provided a framework for research design based on three main

steps as presented in Figure 5.1 (below).

Figure 5.1. Three questions for research design (adapted from Creswell, 2003)

The knowledge claim may guide the research methodology, which then may

inform the detailed research plan and methods employed in the research. According to

Creswell, one of four alternative knowledge claims (postpositivism, constructivism,

Question 1What is researcher's

knowledge claim

Step 2What strategies/ methodologies

inform procedures

Step 3What methods for

data collection/ analysis will be

used


advocacy/participatory, and pragmatism) should be adopted by the researcher to guide

the inquiry. By stating knowledge claims, the researcher acknowledges the

assumptions and perspectives they bring to the research based on their backgrounds

and experience. For this research, a pragmatic oriented approach, as defined by

Creswell, was adopted. The pragmatic approach is centred on ‘what works’ in

addressing the research problem. A pragmatist approach accepts that there is not

necessarily unity in approach and thinking, reinforcing a method that seeks multiple

ways to collect and analyse data. Hence pragmatism “opens the door to multiple

methods, different world views, and different assumptions, as well as different forms

of data collection and analysis in the mixed methods study” (Creswell, 2003, p12).

Using the pragmatist approach, the research question is central to understanding the

problem (Mackenzie & Knipe, 2006).

In determining methodology, Creswell further stated that a mixed methods study

would support the pragmatic approach. Mixed methods, most often incorporating both

quantitative and qualitative research components, acknowledges the limitations of

purely quantitative approaches to hypothesis testing, in that quantitative approaches

do not help in identifying new or unanticipated factors or constructs. Within mixed

methods research, quantitative approaches assist in providing prior knowledge to the

qualitative component as part of an integrated inductive/ deductive approach (also

referred to as a hypothetico-deductive approach) (Ali & Birley, 1999).

Furthermore, the rationale for a mixed methods approach allows for an

‘expansion’ intent that ‘seeks to extend the breadth and range of inquiry’ (Greene et

al., 1989). Creswell (2003) stated that a sequential mixed methods approach using a

quantitative method to test theories or concepts, followed by qualitative methods

involving more detailed exploration is a typical application of a pragmatic research

approach.

A preliminary conceptual model for incorporating sustainability into investment

decision making was developed through the literature review and is outlined in Figure

2.4. The components of the model include:

• The application of sustainability goals stated by infrastructure providers;


• Problem definition and option generation using investment management

guidelines as evidenced by “best practice” investment management

processes;

• Analysis tools that may broaden the current use of Cost Benefit Analysis,

including the potential to incorporate Multi-Criteria Analysis and other

analysis methods;

• The political and institutional systems that impact on the decision making

process;

• The impact of regulatory approval and governance requirements in

achieving sustainable outcomes;

• Consideration of boundaries (such as jurisdictional or geographical) in order

to achieve optimal sustainability outcomes;

• Participation processes incorporating community and institutional

stakeholders.

Bansal & Roth (2000) claimed that the development of such a model provides an

important starting point for research, but has limitations in that:

• the data that ground such a model are inadequate; and

• the model is not fully specified- ‘the constructs and their underlying

relationships require greater precision in order to be predictive’(Bansal &

Roth, 2000, p.719)

In their research (which sought to explain ‘why companies go green’), Bansal &

Roth used analytic induction and empirical data to challenge their emerging

hypotheses and develop theory that was empirically grounded (Bansal & Roth, 2000).

Theory building requires the research process to link the research question/s and may

be based on a quantitative or qualitative evidence, or both (Eisenhardt, 1989).

An integrated inductive/ deductive approach (also referred to as a hypothetico-

deductive approach) has been adopted for this study in order to progress from an

abstract logical relationship toward theory based on concrete empirical evidence (Ali

& Birley, 1999).


5.2.2 Research Design

The following core questions form the basis of this research:

1. Do corporate sustainability goals stated by infrastructure agencies translate

to project level decision-making in the pre-investment stage for


2. What is an optimal system approach to support project selection and

decision making for infrastructure projects within a strong sustainability

framework?

Using a mixed methods approach, data collection can be done in various ways in terms

of both sequence and emphasis in relation to qualitative and quantitative aspects.

Quantitative approaches are suited to the first question, and qualitative approaches may

address both research questions. A sequential, staged approach to the research, was

adopted to allow an explanatory model to be built. The quantitative study formed an

initial stage to firstly test and refine the conceptual model, prior to more detailed

enquiries of the problem within the qualitative study. This approach used the first stage

of research as an effective pilot or test study to assess the preliminary conceptual

model. Pilot studies are appropriate for small sample sizes as a means to provide

insights without adding to theory in its own right. A pilot study may form part of an

ongoing process of research design, providing insights into participant samples and

recruitment strategies, assessing the adequacy of the quantitative approach, and

assisting in the finalisation of the following component of the study (Johnson,

Onwuegbuzie, & Turner, 2007).

The main focus of the research was the qualitative study seeking to explain in

greater depth the results from the initial pilot study. In terms of research emphasis, the

approach may be described as quant à QUAL, with the emphasis on the qualitative

aspects (DeCuir–Gunby, 2008).

The research design forming part of this Mixed Methods research was developed

with reference to further guidance provided by Piper (2006), Mackenzie & Knipe

(2006) and Onwuegbuzie & Leech (2006) and comprised the following elements that

are discussed more fully in the following sections.

1. Literature Review and model framework

2. Selection of proposition testing criteria


3. An initial small-scale study comprising a structured cross-sectional survey

of water agencies, data collection and analysis (quantitative)

4. Data analysis and proposition modification

5. Semi-structured interviews of selected industry specialists

6. Coding, analysis and iterative modification of proposition (qualitative)

7. Adapting/ synthesising findings in respect to model

8. Report findings

Figure 5.2 provides a summary of the research design.

Figure 5.2. Summary graphic of research design

Owen (2014, p. 11) noted that research focused on evaluating programs should

‘seek copies of the law, rules, regulations, guidelines, and legal interpretations’, as

well as other program documents such as annual reports, financial statements,

newsletters, budget justifications, and more organisation charts. These documents,

together with other relevant strategic and operational documents produced by

infrastructure providers and regulating agencies, were collated and reviewed to

provide background to topics raised.

Final model and findingsModel building and refinement Incorporate literature

Results and analysisCoding using NVivo Synthesis of results

Qualitative Study (Stage Two)Semi- structured interviews Assess the overall decision making domain

Results and analysisInitial hypothesis testing Review qualitative research design

Initial Quantitative Study (Stage One)Structured Survey Subject Matter Experts in the water

industry

Preliminary ModelDeveloped from literature review Reference to research questions


A further element of the research approach, based on methodologies espoused

for combined inductive/ deductive approaches, incorporated an iterative loop, whereby

new concepts emerging as the research progressed may be further developed and tested

through the literature review. In generating theory, it is often not possible to fully

review all the literature beforehand, and hence a further step in the research

methodology included a ‘combining’ step that brought together the new and emerging

concepts with the existing underpinning technical literature (Dubois & Gadde, 2002).

5.3 INSTRUMENTS/ FRAMEWORK

The concepts and model developed in the literature review apply across all

sectors of the infrastructure industry. The literature has been sourced from

international research that more broadly addresses problems in decision making for

infrastructure projects, but also within specific sectors such as water, transportation,

coastal infrastructure and energy. For this research, the focus has narrowed to the water

industry in Australia taking account of the specific institutional settings for water

management at national, state and local levels. Chapter 4 outlined the particular

attributes of the water industry and a brief description of the political, legal, and

structural frameworks for the water sector in Australia. In addition, the challenges

relating to aspirations to advance practice in integrated water cycle management

(IWCM) have been outlined, and highlighted in submissions to a recent Australian

Senate Inquiry. The narrowing of the research to a single case (the water sector in

Australia) is not seen to diminish the outcome of this research, but instead provides a

higher degree of focus on an industry which, in itself, is multi-dimensional and

responsible for a range of public services.

As noted in the discussion on the theoretical framework, the CAS (Complex

Adaptive Systems) Framework has been used to guide questioning in both surveys and

interviews throughout the research. Whilst the literature review has focused on the

analysis ‘processes’ such as the use of CBA and MCA, the CAS framework

acknowledges that decision making exists in a wider system, and all of the elements

in the system should be investigated (Rhodes et al., 2010). Proposition testing has been

developed in consideration of the wider system dynamics, namely:

• The system boundaries;

• Environmental factors;


• Environmental rules;

• Agents;

• Processes; and

• Outcomes.

5.4 PROCEDURE AND TIMELINE

Following is a description of each of the two stages of the research process. Full

details of the survey forms and questions are provided in Appendix A to D. This

section outlines the research design processes, the approach to the identification of

participants, and the analysis techniques that were adopted across the research stages.

5.4.1 Initial Quantitative Study (Stage One)

As part of a sequential mixed methods study, the first stage was designed as an

initial quantitative study seeking to validate the findings from the literature review in

the context of water industry practitioners in Australia. The research questions and the

theoretical model formed the basis of the analysis approach, which, in turn, guided the

design of the questionnaire and the consideration of participants in the initial study.

A cross-sectional survey was proposed to focus on understanding general

industry practice:- what practitioners are doing, and the system dynamics for

incorporating sustainability in decision making. The design of the survey referenced

the conceptual framework to address the first research question, namely:

Do corporate sustainability goals stated by infrastructure agencies translate to


projects?

This question was broadened to incorporate the following sub-questions:

• Do infrastructure agencies have corporate sustainability goals/ targets;

• What are the processes and guidelines adopted in investment decision

making;

• Are corporate sustainability goals captured in investment decision making;

• Is sustainability value captured (weak or strong sustainability);

• What factors support a sustainability framework; and


• What are the barriers to incorporating sustainability in decision making.

The key objectives of the survey sought to assess the validity of the preliminary

concept model that was developed from the literature review and to identify any key

issues that may influence the final design of interview process forming the next stage

of research.

Questionnaire

A copy of the survey is provided in Appendix A (Key Survey Questionnaire).

The survey, comprising 21 questions, included a mix of nominal, ordinal, interval and

ratio scale measurement variables that will be designed to address these questions. In

addition, the survey was constructed to test the validity of the conceptual framework

developed through the literature review. This was done through questions addressing

the effectiveness of various tools and processes in their ability to support sustainability

assessment within decision making using questions based on a four grade (r=4) Likert

scale described by Göbet al. (2007) as follows:

Value Assessment

1 Not relevant

2 Somewhat relevant

3 Relevant

4 Highly relevant

The survey was designed to allow further assessment of any gaps that may exist

in the processes currently adopted by organisations for investment decision making,

and the views of industry practitioners on processes that may incorporate

sustainability.

In assessing outcomes of Likert surveys, there are a range of interpretative views

across academic discourse in assessing ordinal (ranked) data, and interpretation

through parametric statistics may be problematic (Allen & Seaman, 2007). Göb et al.

(2007) stated that, using an ordinal interpretation, analysis should focus on the ratios

of respondents choosing values on the Likert scale. The analysis has, therefore,

focused on overall thematic trends, rather than individual responses. The survey was


designed to allow further analysis of the issues raised from the literature review as

previously discussed, namely:

• Whilst public sector decision-making is complex with a range of

stakeholders and political inputs, there is a preference to utilise technical/

‘black box’ methodologies to inform decision making;

• The environmental and social dimensions of sustainability are not well

understood and attempts to monetise these elements do not fully capture all

costs and benefits for infrastructure projects; and

• Given that investment decision making incorporates value judgements, the

inclusion of broader analysis that includes public participation may more

effectively assist in addressing deep and complex problems.

QUT’s Key Survey software provided the capability to collate and store survey

responses, and could be used to initially analyse responses and develop reports.

Approach to Analysis

There are a range of approaches that may be used to assess content validity to

examine the agreement or consistency in a construct as result of ratings from a panel

of experts. Content validity is ‘the degree to which elements of an assessment

instrument are relevant to, and representative of, the targeted construct for a particular

assessment purpose’ (Haynes et al., 1995). Content validity assesses ‘the ability of the

instrument to measure the attributes of the construct under study’ (DeVon et al, 2007).

Content Validity Analysis is commonly attributable to Martuza, an education

specialist, but is also commonly applied to fields such as health and information

systems, as well as management systems (Polit & Beck, 2006). Table 5.1 summarises

three key methods of analysis that are referenced in research that uses Content Validity

Analysis (derived from DeVon et al. (2007) and Polit & Beck (2006).


Table 5.1

Three Methods of Analysis using Content Validity Analysis

Method for analysis by author:

(1) Lawshe

(1975)

(2) Lynn (1986) (3) Wynd et al.

(2003)

Rating Scale Use of 3 point scale:

-Essential

-Useful but not

essential

-Not necessary

Use of 4 point scale:

-Extremely relevant

-Relevant

-Somewhat relevant

-Not relevant

Use of 4 point scale:

-Extremely relevant

-Relevant

-Somewhat relevant

-Not relevant

Basis of

Calculations

CVR (based on the

number of experts who

rate an item as

‘essential’

The CVI for each

scale item is the

proportion of experts

that rate an item as 3

or 4 on a four point

scale.

The scale item CVI

is adjusted using a

kappa statistic to

take account of

agreement beyond

chance.

Basis of content

validity

Proportional

agreement

Proportional

agreement

Proportion of

agreement after

chance agreement is

removed

Polit and Beck (2006) noted that there has been some criticism of content validity

assessments that are based on proportional agreement. More recent research work

advocates the use of Wynd’s methodology, which adjusts the CVI for chance

agreement (Polit et al., 2007). The kappa statistic used in Wynd’s approach is derived

from the work of Cohen (1960) (based on two raters), but modified using the work of

Fleiss (1971) that applies to more than two raters. In this research, the methodology

proposed by Wynde has been adopted, using the modified kappa statistic k*. On this

basis, survey questions should be constructed in relation to individual items that form

part of the conceptual model construct. An item Content Validity Index (i-CVI) can be

calculated based on the responses to survey questions, using the four-point rating scale.


The i-CVI value reflects the number of experts agreeing that an item is ‘relevant’ or

‘extremely relevant’. The i-CVI values may then be converted using the modified

kappa value (k*) that adjusts the i-CVI to take account of the probability of chance

agreements using the formula:

Equation 5.1 Modified kappa using the proportion of agreements on relevance (from Polit et al., 2007)

Where:

Equation 5.2 The probability of chance agreement based on the formula for a binomial random variable (Polit et al., 2007)

And where:

N= Number of experts,

A= The number of experts agreeing on good relevance, and

i-CVI refers to the calculated item relevance based on proportional agreement.

Table 5.2 provides guidelines for the use of modified Kappa (k*) in determining

the level of agreement between raters (from Polit & Beck (2006) and Fleiss, Levin, &

Paik (2013)).

Table 5.2

Guidance for use of modified kappa values in determining item relevance

Kappa (k*) Evaluation

>0.75 Excellent

0.6-0.75 Good

0.4-0.59 Fair

<0.4 Poor/ no relevance

CVI ratings may be used to firstly assess the validity of the preliminary

theoretical construct with a focus on sustainability practice.


Participants

In identifying survey participants, a key consideration was the need to recruit

subject matter experts who could provide informed and reliable advice on current

sustainability practice. The number of experts required to determine content validity

has been subject to numerous interpretations. Content Validity Analysis recognises

that the availability of subject matter specialists may be difficult and considerations of

accessibility and agreement to participate may limit the number of participants (Lynn,

1986a). According to Tojib & Sugianto (2006), a minimum of three responses are

required to analyse data using the Content Validity Index (CVI). Other researchers

recommend sample sizes of five experts (Lynn, 1986) or seven experts or more (n>=7),

in order to evaluate content validity (DeVon et al., 2007; Polit et al. , 2007).

The identification of participants within the water industry with expertise in

sustainability presents significant challenges. Sustainability practice varies across

water providers and not all water service providers have strong commitments to

sustainability. This issue may be illustrated by the findings of a report on the

performance of 76 water service providers across Queensland that stated:

There are varying factors and challenges that influence the services offered by

providers, including location, climate, weather patterns, access to skilled and

experienced staff, population growth and contraction, constrained capital and,

in some cases, limited opportunities for economies of scale. These challenges

can significantly influence provider performance across a range of indicators.

For example, the provision of reasonably priced good quality drinking water

is the aim for all providers; however, this can be more difficult and costly for

small and/or remote providers or providers with constrained water sources

(Department of Energy and Water Supply, 2017, p. 8).

A further issue in recruiting participants for such a study is the consideration that

project appraisal and business case development is often a politically sensitive activity

and often is subject to confidentiality arrangements. In order to recruit participants that

could contribute to knowledge on leading sustainability practice applied to business

cases, a targeted group with expertise in sustainability practice and project planning

was required. For this survey, cluster random sampling was proposed, which DeCuir-

Gunby described as a ‘random sample of groups that occur in a setting’ (DeCuir–

Gunby, 2008). In this case, the Water Services Association of Australia (WSAA) - the


peak membership body for the 42 leading water authorities operating in Australia-

provides a more defined group of organisations largely focused on sustainability

outcomes. Within WSAA, the Healthy and Living Communities Committee (HLCC)

has been established to ‘influence’ and advocate for the creation of communities

(founded on the sound principles of water supply and sanitation) where resources are

utilised sustainably and the water environment is managed to enhance quality of life’

(Water Services Association of Australia, 2016). HLCC membership represents

twenty of the Australian water industry key experts on sustainability. Membership of

the HLCC covers all states and territories, with the exception of the Northern Territory.

Therefore, the HLCC represents leading sustainability practice in the water industry

across Australia. For the purpose of seeking input from subject matter experts, all

members of the HLCC were invited to complete the questionnaire. Table 5.3 outlines

the HLCC member organisations:

Table 5.3

Organisations with membership of the HLCC in WSAA

Yarra Valley Water (Vic) Water Corporation (WA) SEQ Water (QLD) Coliban Water (Vic) Aqwest (WA) Gladstone Water Board

(QLD) Barwon Water (Vic) Icon Water (ACT) Toowoomba RC (QLD) City West Water (Vic) South Australia Water (SA) Logan Water (QLD) Melbourne Water (Vic) Hunter Water (NSW) Unity Water (QLD) South East Water (Vic) Byron Shire Council (NSW) Western Water (Vic) City West Water (Vic) Sydney Water (NSW)

All participants were informed that their responses would be confidential and

individual responses would not be attributable. Chapter 6 provides the results of the

research process, including the responses to the questionnaire.

5.4.2 Review and Hold Point

Using a sequential, staged approach, the research design included provision for

the assessment of the outcomes of the initial quantitative study and an effective ‘hold

point’. This would allow the review and refinement of the design for the following

stage of research that was focused on developing a deeper understanding of practice

through interviews. The intent of the initial quantitative study was not necessarily to

provide statistically valid, stand-alone data, but to inform the development of the

model construct and provide insights into the finalisation of the details and process for

the following stage of research. Key outcomes sought from the initial study were:


• To clarify the identification of participants in the next round of research;

• To inform the most appropriate method of recruiting relevant participants

in the next round of research;

• To validate the continuation of the proposed research design; and

• To provide insights into the conceptual model, to identify any gaps in

knowledge and identify any areas for inclusion or further interrogation

within the next stage of research.

5.4.3 Qualitative study (Stage Two)

The focus of this stage of research was to continue to address the first research

question, but to fully explore the second research question, namely:

What is an optimal system approach to support project selection and decision


This research question included the following addition sub-questions:

• How does the regulatory environment impact on sustainability

considerations?

• What are the tools used to support sustainability goals and how effective are

these?

• What other system elements (guidelines, training, resources) are required to

support tools?

• How are public participation models used and how effective are these?

Design

The design for the qualitative study was based on the use of semi-structured

interviews for data collection with a continued focus on experts with a strong

understanding of practice in a real-world setting. Using a social constructionist

epistemology, the focus was not only on how experts describe their practice, but also

on developing an understanding of why they construct their work in a particular way

(Dick, 2004). The interview questions were based on the themes that were identified

in the conceptual framework, however the emphasis of questioning was tailored to the

knowledge claim and industry perspective provided by each interviewee. For example,


for practitioners who develop business cases, questioning would have greater focus on

analysis techniques, whereas government decision makers, with knowledge in the

political and governance spheres, would be better placed to address questions around

the institutional factors in decision making.

As noted previously, a social constructivist approach was assumed for this

research. Social constructivist interviews tend to be loose in structure, with broad

questions allowing participants to construct meaning from the situation. The aim was

to develop more open-ended questions and allow responses that reflect the

participant’s life setting (Creswell, 2003). In qualitative research, the interview

questions do not need to comprise a formal schedule to be asked in a set order, but

rather be based on an interview guide listing topics that should potentially be covered,

together with follow-up questions and probes (King, 2004). Follow-up and probing

questions seek to develop greater insight and depth to the research.

Thus, the research design included three types of questions:

1) main questions (reflecting the research problem)

2) follow up questions and

3) probes.

The following Appendices provide details of the interview questions that were used

for this research:

Appendix B: Interview Questions- Industry Practitioners

Appendix C: Interview Questions- Independent Stakeholders

Appendix D: Interview Questions – Central Agencies

All interviews were recorded, allowing all audio files produced to be imported into the

NVivo qualitative data software programme. Interview transcripts would then form

the basis on further analysis and review. The written representation of interviews

proposed a standard orthography approach, in that the norms of written language were

adopted (Kowal & O’Connell, 2004).

Analysis

The approach to analysis of interview transcripts was based on the knowledge

claim of pragmatism, seeking to understand real world practice focused on the ‘what’


and the ‘how’ of current practice and the intended consequences of actions (Creswell,

2003). The analysis of data was proposed to involve a process of describing concepts,

classifying them and assessing how concepts inter-relate (Broadhurst et al., 2001). The

NVivo data analysis software package, available through QUT licensing

arrangements, was procured to analyse records of interview transcripts. Using NVivo,

interview data can be analysed as part of an iterative process with the systematic

reduction of data through the grouping of data into broad ideas or codes based on

interview questions and emerging themes (Creswell et al., 2007).

Coding relates to words or phrases that represent some form of phenomenon-

whether these be ‘a concept, belief, action, theme, cultural practice or relationship’

(Tracy, 2012, p.189). Coding may be approached as an iterative process, with initial

coding based on the primary data provided in interviews and documents. Owen (2014)

discussed coding options using NVivo and suggested a combination of descriptive

coding (focused largely on document analysis) and evaluation coding (derived from

interviews and appropriate for a policy and organisational setting). Constant

comparison allows the modification of code descriptors to suit new data. The aim of

coding is to build knowledge around the broad research concepts that have been

identified in the literature review, and to apply an on-going process of reflection and

evaluation in order to either:

• Verify the model construct developed in the literature review; or

• Develop a new construct model.

NVivo capability was also used to record memos that collate ideas, observations,

thoughts and progress throughout the research process.

A further synthesis task in the research design included the integration of the

results of both quantitative and qualitative survey outcomes, to ensure data validity

and trustworthiness. In order to address trustworthiness, the process of reflexivity

requires the researcher to acknowledge their beliefs, subjectivities and biases, thus

allowing less subjectivity when analysing data (DeCuir-Gunby, 2008). Integration

processes also allow cross-checking of data provided from responses across studies.

This may also require a reconciliation of any differences in outcomes across the

quantitative and qualitative stages (Greene et al., 1989).


Through analysis from both an industry-wide perspective, and subsequent

deeper investigation at a practitioner level, this research design has sought to provide

a deeper insight into current practice, and to identify opportunities for enhancing

practice across infrastructure industry sectors. The process of synthesis and cross

checking provides the ‘expansion’ feature of a mixed-methods research approach. The

research design has been based on the goal to provide an explanatory model that builds

on the conceptual framework model developed from the literature review. Industry

surveys, which may be subject to quantitative analysis, form the basis of identifying

key problems and gaps in current practice. Qualitative analysis, based on interviews,

seeks to develop solutions to these identified problems. A key objective of this research

was to better understand industry practice and to develop a model for practice that

addresses the identified shortcomings in current approaches to decision making.

Participants

The water industry is an open system and is represented by numerous individuals

and numerous organisations, both public and private, across Australia. In a broad

empirical case study, it is important to firstly define the boundaries associated with the

research work (Dubois & Gadde, 2002). For this research, the choice of participants is

related to boundaries associated with expertise in the process of business case

development. The research has focused on water practitioners with an understanding

of “strong” sustainability practice. Decisions on sampling and participation need to

align with theoretical foundations of the research design. DeCuir-Gunby (2008)

outlined several sampling approaches that are used in mixed methods research, such

as random, convenience, purposive, snowball sampling. For each stage of this

research, a different sampling approach was assumed and the reasons for the approach

adopted are outlined further below.

For the qualitative study, a purposive sample (which DeCuir-Gunby defines as

‘sampling predefined groups that are not always representative of the overall

population’) was adopted. Using purposeful sampling, it is necessary to identify

participants who are ‘knowledgeable, are able to provide balanced perspectives, and

will contribute to the proposed theory’ (DeCuir–Gunby, 2008). For this research stage,

the objective was to interview a spectrum of industry specialists who participate in, or

have strong insights into decision making for infrastructure projects across the

decision-making process. The initial identification of participants was based on a


review of organisations and individuals who made presentations at the water industry’s

Ozwater conferences in 2015 and 2016. Those who spoke on the development of

business cases, the challenges that they encountered and lessons learned, were seen to

be well qualified to provide insights in relation to the research questions. This led to

the identification of three key interviewees, all of whom agreed to participate in the

research. From that point, the further identification of participants was based on the

consideration of the decision-making loop for projects. This decision loop comprises

experts in: policy making; project management and business case development;

organisational management; economic analysis; and political level decision making

which, in the water industry, is often delegated to government appointed boards.

Figure 5.5 below provides a diagrammatic representation of the decision-making

process.

Figure 5.3. Selection of interview participants for research

In total, 14 individuals were identified from across the decision-making process for

participation in the interviews. No organisation or individual who has participated in

Central Government, industry associations

Water Utilities- project “owners”

Specialist consultants providing advice to water utilities

Water Utilities- senior management reviewers

Water Utilities- Board level


the interviews will be identified by name in view of the political sensitivities and

confidential nature of business case development. However, where some participants

have spoken publicly at conferences or other industry events, these details or

quotations will be attributed.

5.5 ETHICS

The key ethical consideration for this research was the need to ensure that

responses to surveys and interviews are not attributable to individuals, unless those

individuals specifically give consent. The processes of data management and reporting

have complied with this requirement. Ethical clearance was sought using relevant

consent forms. Based on the iterative, staged approach to the research, approvals were

sought in two stages to cover both the initial quantitative survey and the second stage

qualitative interview components of the research.

Health and Safety approval was not applicable for this research.

5.6 CONCLUSION

This section outlines the research design that addresses the two research

questions. The goal of the research is to understand how the sustainability objectives

of infrastructure agencies translate to decision making around project delivery

processes, including project selection, and to understand the system dynamics that may

support decision making that may best deal with complexity and uncertainty. This

research is focused on the development of an investment decision-making framework

and guidelines, which will effectively translate the corporate sustainability objectives

of infrastructure agencies into the processes and systems that are used to evaluate

project options within the business case for major infrastructure investments.


Chapter 6: Results

6.1 INTRODUCTION

In this chapter, the results of the two phases of the sequential mixed-methods

approach research are presented and addressed separately. The research incorporated

an initial survey of industry practitioners, followed by a more substantive research

phase based on interviews with industry practitioners. As noted in the previous chapter,

the emphasis of the research approach may be described as quant à QUAL, with the

emphasis on the qualitative aspects. The first research question addressed the ‘how’ of

current industry practice, but the emphasis of the research was to explore more deeply

the ‘why’ around current industry practice, and this is most effectively addressed

through qualitative processes. This chapter presents the results of the two phases of

research.

6.2 OUTCOMES OF INITIAL RESEARCH STAGE

The initial phase of research was formulated to firstly address the research

question:

Do corporate sustainability goals stated by infrastructure agencies translate to project

level decision-making in the pre-investment stage for infrastructure projects?

A questionnaire, formulated using Key Survey Enterprise software, was sent to

members of the Healthy and Living Communities Committee (HLCC), formed by the

Water Services Association of Australia (WSAA). The committee comprises 20

members from water authorities of various sizes from across Australia. The

committee’s focus is to ensure ‘resources are utilised sustainably and the water

environment is managed to enhance quality of life’. Hence the committee’s members

are water industry experts on sustainability.

A request to participate in the survey, together with details of the link to the

survey, was issued to members of the HLCC group via email in December, 2015. A

further request to complete the survey was sent in January, 2016. Responses to the

survey were reviewed in February 2016. At that time, seven responses had been

received. The timing of the survey (released just prior to the Christmas holiday season)

108

may have contributed to the low response rate of 35 percent. Also, as noted earlier,

business cases, and business case development, is often subject to confidentiality in

the public domain. The low level of participation in this survey may, in part, be

attributed to a desire by some potential participants to maintain confidentiality around

the process.

Even so, the participants provide an expert panel from within the water industry

that may facilitate the analysis of responses, using the content validity. As outlined in

Chapter 5, a minimum of three responses is recommended to analyse data using the

Content Validity Index (CVI) and a sample size of five to seven experts is considered

adequate to evaluate content validity (Lynn, 1986; Tojib & Sugianto, 2006; DeVon et

al., 2007). Content Validity Analysis recognises that finding available subject matter

specialists may be difficult, and considerations of accessibility and agreement to

participate may limit the number of participants (Lynn, 1986a).

Based on the question, ‘what is your position in your organisation?’, the

responses provided the following roles of participants (Table 6.1).

Table 6.1

Roles of participants in survey

Position No

CEO/ General manager 1

Senior managers 3

Project manager 1

Middle Management 1

Environmental Strategy Officer 1

In consideration of the confidential nature of corporate practice in this field, the

identities of respondents were not linked with responses. This approach also complied

with the approach proposed as part of the ethics approval. Three responders provided

names and contact details and most of the respondents provided additional comments

on various questions; these comments are provided in the following discussion.

An initial question asked, ‘does your organisation have sustainability goals or

commitments?’. All respondents answered ‘yes’, indicating that all participants work


in organisations with strong sustainability commitments. These results show that there

is uniform adoption of sustainability goals within corporate strategies in the participant

organisations. This is not surprising, given that the participants work for organisations

with a strong commitment to sustainability. It should be noted that this outcome should

not be seen to reflect practice across the water industry in Australia, but rather reflects

the commitment to sustainability by the organisations represented by this expert group

of practitioners. However, one respondent commented that there is ‘not a commonly

shared view of what sustainability/liveability means’.

A group of questions sought details on how sustainability is applied to current

practice in design and construction and in investment decision making (the business

case). Questions on whether sustainability is applied in practice required responses

using a four-point scale of never, sometimes, often or always. The responses from

these questions providing general agreement to the statements (within the categories

of ‘often’ and ‘always’) are presented in Table 6.2 below. (Appendix E provides a

more detailed breakdown of responses).

Table 6.2

Survey responses reflecting how sustainability is incorporated in current practice

Survey Item Generally applied (often or always) Percentage

(3) In your organisation, would you consider that sustainability initiatives are incorporated into project solutions at design, construction and/or operations phases of project delivery?

3

43%

(4) In your organisation, are sustainability considerations applied to investment decision making for projects?

4 57%

(6) Investment decision making in my organisation is informed by corporate sustainability strategies or goals.

3 43%

Note: Numbers in parentheses indicate the survey question number.

Notably, one respondent indicated that, in their organisation, sustainability is

always incorporated both in investment decision making and that corporate strategies

and goals guide investment decision making. However, across the organisations

represented, the respondents indicated that sustainability goals and targets are not

110

uniformly adopted, within either the investment decision-making process or in design

and construction phases. This result provides an initial response to the first research

question and indicates that, even where strong sustainability commitments are stated

by organisations, there is not necessarily follow-through in decision making or in

delivery processes to ensure that sustainability commitments are achieved.

A further series of questions sought details on the tools that are currently used in

investment decision making. Table 6.3 provides the responses to Questions 7, 9 and

11, seeking details on the analysis techniques that are employed. (Appendix E provides

a more detailed breakdown of responses).

Table 6.3

Survey responses on analysis techniques that are used in current practice

Survey question Generally applied (often or always) Percentage

(7) Economic analysis utilising Cost Benefit Analysis (CBA) is used to support investment decision making in my organisation.

5

71%

(9) Multi Criteria Analysis techniques are used to support investment decision making in my organisation

4

57%

(11) Participation by stakeholders (including end users) is used to support investment decision making in my organisation

5

71%

Note: Numbers in parentheses indicate the survey question number.

CBA is typically used in investment analysis although one respondent indicated

that their organisation does not use CBA (and that Multi Criteria Analysis (MCA) was

used instead). This result, showing a high level of usage of CBA, reflects that much of

the guidance on business case development typically proposes the use of CBA. One of

the survey respondents added a comment that CBA is ‘part of governance process’. In

addition, a majority of responders also indicated that MCA is used as part of decision

making. From the results, the use of CBA and MCA appears to be interchangeable, as

several respondents indicated that both techniques are used. One comment noted that

it ‘depends on the project - best tool for the job’. A further comment noted that there

are ‘varying opinions about the suitability of MCA/CBA as decision making tools’.


In order to gain insights on the relevance of various tools and techniques, a series

of questions sought to assess the effectiveness of analysis techniques using a four-point

rating scale (with items rated from irrelevant to extremely relevant). The survey asked,

‘How would you rank the effectiveness of (CBA, MCA etc) in supporting investment

decision making within a sustainability framework?’. As described in Chapter 5, item

Content Validity Index (i-CVI) was used to assess responses, whereby the i-CVI value

is based on the number of experts agreeing that an item is ‘relevant’ or ‘extremely

relevant’. The i-CVI values were then converted to a kappa value (k*) that adjusts the

i-CVI to take account of the probability of chance agreement. Table 6.4 presents the

overall responses, together with kappa values for the survey questions addressing

analysis techniques and their relevance to sustainability assessment.

Table 6.4

Effectiveness of analysis techniques within a sustainability framework

Analysis technique Respondents

in agreement

i-CVI

Kappa K* Evaluation

(8) Cost Benefit Analysis

4

0.57

0.41

Fair

(10) Multi Criteria Analysis 5 0.71 0.66 Good

(12) Participation by

stakeholders (including end

users)

7 1 1 Excellent

(14a) Life Cycle Assessment 6 0.86 0.85 Excellent

(14b) Real Options Analysis 2 0.14 0.09 Poor

(14c) The incorporation of

sustainability initiatives

7 1 1 Excellent

(14d) Investment management

standards and benefits

assessment

7 1 1 Excellent

Notes to table: Numbers in parentheses indicate the survey question number. i-CVI – item Content Validity Index

Evaluation criteria for kappa, using guidelines from Polit et al,. (2007): Poor/ no relevance- k*<0.4;

Fair-.k* of 0 .40 to 0.59; Good-.k* of 0.60–0.74; and Excellent.k* >0 .74.

112

Of the techniques that were assessed, the respondents largely rejected the relevance of

Real Option Analysis (described in Section 2.3.5). Of all other techniques, there was

fair to excellent agreement. The results show that there is strong agreement that a

sustainability approach involves participation of stakeholders (including end users),

the incorporation of sustainability initiatives (as an example providing measures to

achieve reductions in greenhouse gas emissions), and the use of investment

management/ benefits assessment approaches (discussed in Section 2.2.2). In

clarifying a response relating to participation, one respondent noted that ‘the support

is determined by the capability of the stakeholders consulted as well as the breadth of

consultation. Stakeholders can be very good at problem identification, however not as

useful in proposing alternatives and solutions.’

MCA is seen to have ‘good’ relevance to sustainability practice, and CBA is seen

to have a ‘fair’ level of relevance to sustainability. Two respondents provided

comments on the use of CBA. One noted that CBA ‘provides support where the

sustainability benefits are easily quantifiable, for example increases in surrounding

property values’. Another respondent commented that:

financial considerations are still dominant in any business case. Other

sustainability aspects (social, environmental) are seen as providing additional

value, but the financial analysis is what gets the project over the line. There

(are) still the issues of who pays for the community social and environmental

benefits.

The survey sought responses (Question 17) on the benefits of adopting

sustainability considerations investment decision making for infrastructure projects.

Table 6.5 provides overall responses that have been assessed using the item CVI

parameter.


Table 6.5

Benefits of a Sustainable approach to decision making

Respondents in

agreement

i-CVI

Kappa K* Evaluation

Benefits:

Short-term cost savings

based on capital costs

4 0.43 0.21 Poor

Long-term cost savings

taking account of operating

and maintenance costs

7 1.00 1.00 Excellent

Increased asset value 5 0.71 0.66 Good

Reputational benefits for

client organisation


Enhanced amenity 5 0.71 0.66 Good

Enhanced environmental

outcomes


Consideration of climate

change impacts


Ability to deal with

complexity and risk

5 0.71 0.66 Good

Notes to table: i-CVI – item Content Validity Index



Based on the survey results, the following benefits are identified from adopting

a sustainability approach in investment decision making:

• Sustainability provides long-term cost savings;

• Sustainability provides reputational benefits for organisations;

• Sustainability provides environmental benefits;

114

• Sustainability provides a means to manage climate change impacts; and

• Sustainability incorporates community values.

Survey responses previously identified that sustainability commitments of

organisations do not always translate to either decision making or project delivery

processes. A range of barriers to incorporating sustainability in investment decision

making were identified in the survey for evaluation. Table 6.6 provides responses on

what are the barriers to a sustainable approach.

Table 6.6

Barriers to a sustainable approach

Respondents in

agreement

i-CVI

Kappa K* Evaluation

Barriers:

Sustainability is not a high priority 3 0.43 0.21 Poor

Short term cost impacts 4 0.57 0.41 Fair

Long term cost impacts


Time impacts

3 0.43 0.21 Poor

Capability limitations

5 0.71 0.61 Good

Resource/ materials limitations

4 0.57 0.41 Fair

Regulatory approvals processes

4 0.57 0.41 Fair

Insufficient guidance


Current practice is effective

1 0.14 0.09 Poor

Notes to table: i-CVI – item Content Validity Index




The responses on “barriers” indicate that there is insufficient guidance on how

to incorporate sustainability in decision making. Other key barriers are seen to be:

• The cost impacts of incorporating sustainability;

• Capability limitations;

• Resource limitations (including budget); and

• Regulatory approval processes

The negative response to the statement ‘current practice is effective’ supports

earlier responses that show that sustainability objectives are not uniformly translated

into investment decision making. Through the responses to the statement

‘Sustainability is not a high priority’, the respondents also indicated that, in their

organisations, sustainability is largely a priority.

6.2.1 Outcomes and use of Quantitative Study (Stage One)

As noted in Chapter 5, the completion of the survey, and review of results

provided a hold point in the research, allowing the finalisation of the research design

for the following phase of research.

Table 6.7, below, outlines the factors that were clarified and addressed based on

the outcomes of the initial survey.

116

Table 6.7

Quantitative study outcomes and impacts on second stage of research

Outcomes sought from Quantitative Study

(Stage One)

Considerations for the next stage of research (Stage Two)

To clarify the identification of

participants in the next round of

research

The industry practitioners who responded in the initial survey

were well placed to provide assessments of current practice

focused on analysis techniques. For the next stage of research,

a wider array of participants was seen to be required to provide

insights into the institutional factors that influence decision

making.

To inform the most appropriate

method of recruiting relevant

participants in the next round of

research

The recruitment of participants who may provide insights on

business case development is difficult, as business cases are

typically confidential. For the next stage, participants would

need to be engaged more directly by using contacts within the

water industry.

To validate the continuation of

the proposed research design

The survey and quantitative analysis provided some insights

into current practice and the techniques employed. However, a

qualitative approach based on interviews would more likely

provide a deeper understanding of current practice and the

wider factors that guide decision making.

To provide insights into the

conceptual model, to identify

any gaps in knowledge and

identify any areas for inclusion

or further interrogation within

the next stage of research

The preliminary conceptual model appeared to remain valid. Of

interest was the variation in practice across the industry,

particularly in relation to the use of CBA and MCA. This

would best be explored through the proposed interview design.


6.3 OUTCOMES OF STAGE TWO QUALITATIVE RESEARCH (INTERVIEWS)

As noted previously, the first stage of research showed that, for organisations

with strong sustainability commitments, sustainability is not uniformly integrated in

decision making for infrastructure projects. In addition, the first stage of research

showed that infrastructure delivery organisations adopt a range of approaches to

investment analysis that support decision making. A further stage of research

continued to address the first research question regarding current practice, but sought

to more fully explore the second research question, namely:

“What is an optimal system approach to support project selection and decision making

for infrastructure projects within a strong sustainability framework?”

The aim of this stage of research was to elicit a wide range of views on the

analysis processes and broader institutional factors that apply when addressing

sustainability in decision making for infrastructure projects. Through a series of

interviews, this stage of research sought to identify the factors that support sustainable

practice, and the issues that may act as barriers to achieving sustainable outcomes in

decision making. This data could then be evaluated using qualitative analysis

techniques to develop a model for an optimal system approach to decision making.

6.3.1 Participants and process

Expert participants were identified and invited to be interviewed. In total,

thirteen interviews were conducted with interviewees from across Australia, and over

14 hours of interviews recorded. The interviews were conducted from November 2016

to June 2017. Of those 14 approached, all but one practitioner (being a local

government representative) responded to requests and agreed to be interviewed. It was

determined that the lack of representation from local government was not detrimental

to this research and that those who agreed to be interviewed represent a wide range of

sectoral functions.

Twelve interviews were face-to face and one was conducted by telephone. All

interviews were recorded17. The majority of participants work, or have worked, within

17At about the half way point of one interview, the participant asked that a portion of the interview not be recorded and so that interview, recorded in two parts, contains a significant gap of unrecorded interview.

118

water authorities, and additional participants were identified through their role in the

broader decision-making framework. Figure 6.1 provides a diagrammatic

representation of the areas within the decision-making process and the number of

interview participants associated with each stage.

Figure 6.1. Interview participant roles

The range of areas that were represented within the decision-making process has

ensured that a broad understanding of perspectives and drivers could be elicited. The

choice of water industry participants ensured that the research captured the views of

experts who are actively working to develop solutions to problems that relate to the

research question. The interviewees reside across Australia, and more than half of

those interviewed have substantial experience in the operations of the Victorian water

industry, through direct employment or through consulting work. This has meant that

much of the context from a governance and statutory perspective could be assessed at

both a state and national level, taking account of the legislative settings at each

governance level. The following table (Table 6.8) provides a summary of the

backgrounds of participants, whereby each participant is identified by a reference

number.

Central Government, industry associations

Water Utilities- project “owners”

Specialist consultants advising utilities

Water Utilities- senior management reviewers

Water Utilities- Board level

Three interviews

Five interviews

Three interviews

One interview

One interview


Table 6.8

Interview participant details

Interviewee Ref Interviewee role Background Interview

Duration INT-1 Industry Consultant Engineering training with over 30

years experience in project strategy to the water industry

1 hr 56min

INT-2 Water Industry Executive (Retired)

Background in environmental management and sustainability (over 30 years) with focus on delivering sustainable outcomes

1hr 27mins

INT-3 Water Industry Executive

Engineering and business management background- over 30 years experience (reviews business cases)

1hr 17 mins

INT-4 Consultant Economist Over ten years experience in business case development for water and transport industries

1hr 14mins

INT-5 Policy Advisor – Customer focus

Around 20 years experience in water industry policy role

46 mins

INT-6 Policy Advisor- Regulatory focus

Economist with over 30 years experience with current focus on regulatory policy

54 mins

INT-7 Consultant Economist Over 20 years experience, training in environmental economics and sustainability

51 mins


Over 30 years experience in project management (business case development)

1hr 12 mins

INT-9 Government Executive- Policy

Background in sustainability policy 1 hr


Engineering background- over 30 years water industry experience with focus on sustainability

1 hr 2mins

INT-11 Water Industry Board Member (retired)

Significant experience across the water industry

45 mins recorded (some recording lost)


Engineering background with responsibility for business case development

45 mins


Engineering background – focus on sustainability, liveability and strategy

1 hr

120

Interviewees were asked to reflect on their experiences with and/or observations

on business case development and investment decision making; the ‘rules’ under

which they operate; perceptions about constraints to alternative approaches that

incorporate sustainability assessment; the perceived consequences of current practices;

what system elements are necessary to support current or proposed new practices; and

the effectiveness of public participation models that are used by infrastructure

agencies. This enquiry sought to build a deeper understanding of the context and policy

setting of current practice and opportunities to improve current practice.

Audio files produced from recorded interviews were transcribed into written

files immediately following the interviews. An initial stage of assessing the results was

to read, and re-read interview transcripts to ensure an understanding of the data that

was produced. Coding refers to the sorting and categorisation of data derived from the

interviews. The software package NVivo was used to store audio files and to organise

and code interview data and to identify and organise key themes and their inter-

relationships in the data. Coding refers to the sorting and categorisation of data derived

from the interviews. The coding process involved three distinct stages, and periods of

review and reflection that sought to interrogate emerging themes with reference to the

research questions. Figure 6.2 provides a representation of this staged approach to

coding, the results of which are provided in the following sections.


Figure 6.2. The Three Stages of NVivo Coding

A reconciliation and review of coding themes led to the development of a

hierarchy of themes and sub-themes and comparison with the original theoretical

construct. Building on Creswell’s pragmatist approach, Lenzholzer et al. (2013)

described pragmatic/ constructivist ‘research by designing’ that translates specialist

knowledge into guidelines and models. In research activities, there is a need to

maintain authenticity through systematic and unbiased evaluations of research data,

whilst maintaining a degree of flexibility to explore new ideas or propositions. The

approach to coding sought to maintain authenticity through constant referencing to the

initial conceptual model and exploration of the literature as new concepts emerged.

Using the ‘tree map’ functionality in NVivo, a visual representation of coded

items and the subsequent organisation into key themes and nested sub-themes was

produced. The tree map covers the three stages of coding, whereby the relative size of

Stage 1 coding (Descriptive)•Organisation of raw data into codes based on the a priori model construct

• Organisation from/ into themes and sub-themes

Stage 2 Coding (Analytical)•Coaxial coding based on patterns in data•What are the key issues around current analysis?•How is analysis enhanced?•Additional themes- inputs and enablers

Stage 3 Coding (Refinement)•Review and reflection•Refinement of themes•New framing of themes- benefits, value•Integration- connections between themes

122

rectangles represents the weight of coding associated with topics discussed in the

interviews. The tree map of interview themes is reproduced in Appendix F.

6.3.2 Interview Responses- First stage of coding

Initial coding (referred to as open coding by Eriksson & Kovalainen (2008)) was

largely based on the a priori theoretical construct and included themes of business case

(analysis techniques), decision making, sustainability, participation, boundaries and

organisational goals/ policy link. Broader themes that emerged in interviews included

the use of guidance material, public good, and institutional boundaries.

A brief summary of participant responses to the interview themes is provided

below. The interview guide was not used as a formal script in the conduct of

interviews, but rather acted as a frame and checklist to ensure that relevant topics were

covered. In some instances, the interviewee’s background was not relevant to certain

topics, and hence no firm response was recorded.

Business case development

A key theme of discussion in the interviews was aspects of business case

development. Figure 6.3 provides a mind-map representation of the main topics that

emerged from discussions around the ‘business case’.

Figure 6.3. Key themes from interviews addressing the Business Case

Business Case

Analysistechniques

Complexity

Quality

Interpretationand guidance

Economicanalysis (BCA/

MCA/ ROA)

Use of valuation

Double counting

Sensitivityanalysis


Some participants distinguished between what they considered business-as-usual

(BAU) business cases that apply to ‘simple’ or routine capital works programmes and

more complex and difficult projects that may be typified by aspects such as having:

• High capital costs;

• Long time frames associated for approvals and/or implementation;

• Involvement by a number of stakeholders;

• Strong community interest;

• Impacts to environmental systems;

• Impacts to social or cultural groups;

• New technologies or approaches to servicing;

• The ability to shape urban form and city planning; and

• Input from a range of disciplines.

Some organisations assign specific staff or departments to manage non-routine/

complex projects. Most often, these special projects align with strong sustainability

outcomes, such as integrated water cycle management, use of alternative water,

recycled water schemes, waste-to-energy initiatives or renewable energy projects, and

rehabilitation and re-purposing of ageing infrastructure. Some interviewees were

critical of current practice in some organisations, and considered that the assessment

process can be open to manipulation to achieve a pre-determined outcome.

In responses addressing analysis techniques, the interviews revealed that a wide

range of approaches are used in the analysis that underpins business cases for

infrastructure projects. This result is in accord with the findings from the industry

survey distributed in the initial stage of research. Methodologies employed include

CBA (also referred to as Net Present Value (NPV) analysis), Advanced CBA, MCA

and Triple Bottom Line Assessments. Some interviewees had experience across

numerous organisations and confirmed that approaches to analysis vary across the

industry. Of those working within water entities, one participant described the use of

MCA, whilst others indicated that they had previously used MCA but no longer

favoured that approach. In relation to CBA/NPV analysis, some interviewees

described a number of issues around the interpretation of results, particularly around

124

the acceptance of ‘benefits’ (both monetised and intangible). In order to better capture

a wider degree of values, Advanced CBA was favoured by some who were interviewed

as a more effective approach to incorporate environmental and social factors.

Advanced CBA refers to ‘monetising external costs and benefits as much as possible

and appropriate, and adding these to the private costs and benefits of a proposed project

or action, across the asset life-cycle’ (Hardisty et al., 2012, p. 285). Another

interviewee likened analysis within a business case as more aligned with ‘story telling’

that captures a number of decisions over time, and noted that the use of BCRs may be

useful in prioritising options but should be used with caution when applied as the

ultimate decision of whether a project proceeds or not. In the discussions on economic

evaluation, a key topic emerged around both assigning value and monetary valuation

associated with benefits and impacts of infrastructure works. This topic is further

explored in the following section relating to secondary NVivo coding.

A range of guidance materials or directions that apply to ‘economic analysis’ are

available internationally, and across jurisdictions in Australia. Table 6.9 outlines the

government agencies and guidance documents that were referenced during the

interviews, together with an explanation of the application of those guides and

preferred analysis methodology. Column 3 in Table 6.9 provides the analysis

methodology required by the guidance documents applicable to various agencies. It

may be noted that CBA is promoted by all agencies, but that a range of interpretative

approaches are adopted, whereby qualitative explanations together with quantitative

evaluations are allowed by some, and others prefer broader monetary valuations of

projected benefits. According to one of the interview participants ‘every jurisdiction

does have a preferred methodology for analysis. I think you can construct any outcome

you want’.


Table 6.9

Business case guidance referenced in interviews

1 2 3

Agency Publication Application & Methodology UK Government HM Treasury Green Book Government guidance on the appraisal of

public investments in the UK

Cost Benefit Analysis is recommended

Australian

Government

Handbook of Cost Benefit

Analysis (2006)

Commonwealth government initiatives

Financial analysis and cost effectiveness

analysis favoured

Infrastructure

Australia

Assessment Framework

(2017)

Submissions for the National Infrastructure

Priority List (IPL)

‘A robust CBA’ is to be undertaken

Infrastructure

Victoria

Moving from Evaluation to

Valuation (2016)

Applies to Victorian Government agencies

CBA- with wider scope to value benefits in

monetary terms

Infrastructure NSW

(NSW Government)

Better Value Infrastructure

Plan 2012

High level planning framework for

infrastructure ‘pipeline’

Application of ‘consistent CBA’

Building

Queensland

(Queensland

Government)

Cost Benefit Analysis

Guide 2016

BQ to play a role in Business Cases for projects

>$50m

Economic CBA may include quantitative and

qualitative impacts, required to generate NPV

analysis and a BCR.

Dept of Treasury

and Finance

Victorian

Government

Economic Evaluation

for Business Cases

Technical guidelines

August 2013

Applicable to High Value/High Risk projects in

Victoria

CBA to include all welfare costs and benefits

to society.

Regulatory Impact

Statements (RIS)

Victoria

Victorian Guide to

Regulation 2016

Applicable to policy proposals or changes to

current regulation or legislation

Accompanied by CBA (with qualitative

explanation where quantitative assessments are

not practical)

126

Decision making

Decision making for infrastructure projects occurs within an institutional setting

that is influenced by a range of factors that include the formal processes such as

legislative and regulatory settings, together with the more informal cultural factors

within infrastructure organisations. The analysis that forms part of the business case is

subject to review, commentary, and either approval or rejection through a wider

network of interactions within the organisation and across other key stakeholder

entities. Figure 6.4 outlines the key themes identified in the wider decision making

context.

Figure 6.4. Key themes from interviews addressing decision making

In some cases, business cases are not initiated or undertaken within the

responsible delivery agency, but are, instead, initiated and developed by elected

government representatives or through special purpose agencies within government.

The desalination plant in Western Australia, the desalination plant in Victoria, and the

North-South pipeline project in Victoria were all cited as examples of projects that

were initiated and developed through the political arm of government in response to

the need to develop immediate water supply solutions due to drought.

Within the governance theme, the role of the economic regulator for the water

industry was highlighted by several interviewees. It was stated that often ‘policy is

out of step with the regulatory’, in that broader community benefits are often sought

Decisionmaking

Organisationalcontext

Governancecontext

Politicalinterface

Prioritisation

Participation


through government-led policy, but regulation often seeks efficiency or standard/ low

risk solutions, which discount new approaches with more sustainable outcomes. In

addition, health regulation has played a major role in the provision of water services,

but a risk-adverse position from a health regulation perspective can stifle proposals

such as re-use of wastewater that may present a range of sustainability benefits.

Environmental regulation, applied on the basis of rules and not broader outcomes, may

also be used as a ‘trump card’ to stop proposals that may have wider community

benefits.

One interviewee claimed that a further (under-recognised) aspect of decision

making involves the balance of power and operating dynamics in some organisations.

In this case, there is a propensity for some managers to actively compete to obtain a

significant amount of the capital and operating budgets of infrastructure agencies,

leading to prioritisation decisions with little regard to any level of analysis and project

justification that was undertaken.

A further aspect of the organisational context is the participation by either

stakeholder organisations or community participation in decision processes. Given the

weight of this topic in interview responses, a further section in this chapter discusses

this aspect more fully. Appendix H provides selected responses from interviewees on

the decision-making process.

128

Sustainability

Interviewees confirmed that the release of the UN Sustainability Development

Goals (SDGs) in 2015 was a major step in revitalising the efforts of water businesses

to address sustainable development in their operations. Prior to the release of the

SDGs, interviewees indicated that sustainability as a term was losing prominence, but

the concept remained alive and, in some cases, a shift in focus to liveability and

resilience was seen to complement sustainability efforts. It was noted that both Yarra

Valley Water and Melbourne Water have signed the UN Global Compact,

demonstrating leadership and commitment to sustainability. Organisations that sign

the Compact must commit to:

• Operate responsibly, in alignment with the UN Global Compact’s ten

universal sustainability principles;

• Take actions that support the society around it;

• Commit to the effort from the organisation’s highest level, pushing

sustainability deep into its DNA;

• Report annually on the organisation’s ongoing efforts; and

• Engage locally where the organisation has a presence.

Furthermore, Yarra Valley Water, as part of its Restorative Strategy, has

introduced an Integrated Profit and Loss Statement to measure and report on the value

of its environmental, social, employee and financial costs for both understanding the

benefits it provides as well as understanding the impacts of its operations.

Initial coding identified four sub-topics in relation to sustainability, as shown in

Figure 6.5.


Figure 6.5. Key themes from interviews addressing sustainability

Interviewees highlighted that a common misconception of sustainability is that

it is founded on a single concept, such as a ‘deep green’ (environmental) focus. Some

of those interviewed also stated that wider sustainable outcomes could not be achieved

unless good financial management and governance structures were in place. Aspects

of social responsibility that are seen to be important to water businesses include the

role of water in public health, considerations of customer hardship and the ability to

pay bills, and the wider role of the water sector in promoting indigenous heritage and

values.

The difficulties in defining and understanding sustainability have led to new

concepts being introduced. Resilience, particularly when applied to managing the

impacts of climate change, is seen as a more tangible, relatable concept. More recently,

the notion of liveability has been popular in the water industry, and, for some,

liveability is the new ‘buzzword’ that has taken over from sustainability. One

interviewee differentiated between liveability and sustainability in that:

• Sustainability is about intergenerational equity: ‘basically we leave the

resources and environment in a better place for future generations’

• Liveability, for a water utility, is about ‘looking beyond the regulated

services it is required to provide’ and meeting the needs of the

community that it services. Hence, for some communities, liveability

considerations may be centred on the affordability of water bills, but for

Sustainability

Trade-offs

Relationshipwith

liveability,resilience

Terminologyand

understanding

Supportingfactors

130

others, liveability may be about improved amenity such as providing

drinking fountains in parks.

A complex aspect of sustainability practice is the need to consider the trade-offs

that are required between different benefits and dis-benefits. This involves value

judgements and often challenges the thinking of those involved in decision making.

Again, a common belief is that environmental matters should dominate, however

interviewees highlighted the broader social and economic matters that need to be

considered in a transparent and integrated way.

A number of strong sustainability outcomes were cited in the interviews. One

example includes the shift in thinking around water use that has occurred in the

Melbourne metropolitan area. Through concerted efforts to introduce tariffs, invest in

water efficiency works and education programs, the water use in Melbourne is now

similar to water usage figures of around 1978. Moving forward, one key sustainability

challenge for the water industry is the ability to justify investments in integrated water

cycle management (IWCM). In order to progress initiatives such as IWCM, a number

of supporting factors are required. Using the experience of previous sustainability

successes, the following factors were identified as enabling factors that may support

sustainability practice:

• Ensuring that broader government policy is in place that may align with

sustainability practice;

• Working with regulatory bodies to build an understanding of the

sustainability challenges and opportunities that are emerging;

• Ensuring that long time frames are allowed to work with communities on

solutions that address sustainability challenges; and

• Providing leadership at an organisational level and ensuring that there is

a common understanding and commitment to sustainability in the water

utility.

Appendix I presents a summary of responses on understandings of sustainability

provided from the interviews.


Participation

Participation refers to processes of engaging with those with a strong interest in

the outcomes of a given service including customers or end users of the services, or

identified stakeholders from government, business and communities who may

represent the interest of future users. From the interviews, there is uniform agreement

that participation frameworks are critical in the water industry to support decision

making. One interviewee stated:

We understand that it is probably a greater benefit to the business to spend

money and time in engagement up front in the process- how much is that worth

in dollar terms in not stuffing up and having to go back and change your design

somewhere along the line and do works that you never planned to do.

The key themes discussed are shown in Figure 6.6, and these concepts are

expanded upon below.

Figure 6.6. Participation

Understanding community values According to interviewees, not all water authorities engage with their customers

or the general community, but those organisations that choose to engage or collaborate

see this as integral to a sustainable approach. Engagement and partnerships are based

on an understanding that ultimately, water authorities exist to serve communities, and

that it is the community that cares most deeply about the outcomes of infrastructure

projects. As an example, through working with the community in South Australia, SA

Water has responded with a strong focus on recycled water initiatives. In some

jurisdictions, regulators are now expecting water authorities to engage with their

customers as part of pricing submissions, with the understanding that customer needs

and values are central to business operations. The Essential Services Commission

Participation

UnderstandingCommunity values

Processes andmethods

Communityeducation and

inputDefining thecommunity

Stakeholders

Customers

Broadercommunity

132

(ESC) in Victoria has introduced requirements for water entities to develop pricing

submissions that respond to customer engagement. Community values can also be

evaluated through formal economic evaluation methodologies that seek to gauge

Willingness to Pay (WTP) or Willingness to Accept (WTA) specific initiatives. Some

interviewees indicated that such surveys often provide useful insights into community

values but do not necessarily reflect what a customer is actually prepared to pay for

certain initiatives.

Community education and input

Engagement with communities in the implementation stage of projects, that is,

when projects are in construction, is increasingly seen as an industry norm.

Communications activities in construction are largely built around the framework

provided by the International Institute of Public Participation (IAP2) spectrum of

inform, consult, involve, collaborate, empower. However, at the front end/ decision

making phase, engagement with communities is not commonly adopted across

industry. For those organisations that choose to engage with their communities,

working with community groups is seen to provide a two-way understanding for both

the water provider and the community on the role of the organisation in providing

services that meet community needs. By building understanding of the products and

services that are delivered, infrastructure providers can effectively build trust with their

customers and communities, which, for some, is seen as an essential feature of the

licence to operate for a monopoly service provider.

Defining the community For some, the “community” was seen to comprise all of those people who engage

with the services provided. This may include direct users of water services –the

customers, but also a range of other users including developers who are undertaking

works or visitors who use waterways or water services. For water projects that service

new areas of urban development, questions arise as to what constitutes the community

where it doesn’t exist. In this case, one interviewee spoke of the need to engage with

a range of stakeholders such as local councils, government departments, elected

representatives and representative community groups to understand the key drivers

and issues facing those areas.


Processes and methods

Deliberative models that enable wider participation in decision making comprise

an emerging area of practice. Some interviewees spoke of highly successful models of

engagement through community advisory groups and stakeholder committees. The

Gold Coast Water Futures project, managed by Gold Coast Water, was cited by several

participants, as an example of effective communication with citizens that led the

industry in establishing collaborative processes. More recently, Yarra Valley Water

has established a Citizens Jury to assist in decisions around servicing and pricing, and

some interviewees indicated that they were interested to see the outcome of this

process.

Appendix J provides further detail on the responses provided in relation to

participation, sorted by key themes that emerged in the interviews.

Boundaries

The literature review highlighted that sustainability outcomes are influenced by

the institutional settings of infrastructure agencies. Boundaries may define the breadth

and scope of institutional responsibilities. The responsibilities of infrastructure

agencies are determined by a range of boundaries that may be based on physical or

geographic boundaries, political/ jurisdictional boundaries, and legislative boundaries

impacting on the scope of services that a service provider may deliver. Figure 6.7

summarises the main responses to the question of boundary impacts.

Figure 6.7. Boundaries

A key sustainability challenge for an infrastructure provider concerns how the

activities for which it is authorised to provide, contribute to wider sustainability

challenges such as climate change mitigation and the limitations of planetary

boundaries. For some, the planetary boundaries concept provides guidance to manage

Boundaries

AcrossOrganisations

WithinOrganisations

Authorisingactivities

134

activities within organisational boundaries, and organisational boundaries may be used

to measure the impacts of activities within the broader planetary system.

Organisational boundaries may also act as a barrier to sustainable outcomes.

Integrated Water Cycle Management (IWCM) initiatives were cited as an example of

where organisational boundaries may prevent a whole-of system response to manage

water resources more effectively. Optimal project solutions within water catchments

do not necessary reflect organisation boundaries, and hence require various

organisations such as water authorities, government, councils and private land owners,

to work together to achieve a project solution. This is challenging and resource

intensive. According to one interviewee, ‘it is not routine for people to think outside

boundaries’. At the same time, organisations such as Sydney Water, were cited as

having successfully navigated difficult boundaries involving a range of jurisdictions

to achieve integrated (whole of system) outcomes in water resource management.

The boundaries for authorising activities of infrastructure providers were

discussed by several interviewees. Initiatives such as assisting with soil improvements

in catchments, managing water storages for recreational use, and using water

infrastructure to generate power were cited as potential opportunities for a water

authority to think beyond its core duty to be a provider of water. However, efforts to

advance such initiatives can often be thwarted through resistance, both internal and

external to the responsible agency.

In regional or rural areas, the role and importance of government service

providers such as water utilities can be elevated through the impacts of their activities

in areas such as local economic development, environmental management and

preservation and community development. In the interviews, it was noted that the

decisions made in a regional or rural context need to carefully consider the

implications on local pressure points, and hence purely financial considerations in

decision making cannot fully cover the local context.

Policy Nexus

The influences of higher level policy, organisational strategy and goals for

decision making were discussed by several interviewees. Appendix L provides

selected responses from interviewees on the role of policy and organisation goals in

the decision-making process. Across the water industry, it was noted that there is some


variability in how water authorities articulate their strategies and goals. In the State of

Victoria, Water for Victoria, introduced in 2016, forms the policy platform that sets

the direction for water authorities to prioritise service planning. New requirements to

incorporate recreation and liveability, together with planning for aboriginal values,

were identified as areas that present new challenges for water authorities to address.

One interviewee asserted that, over time, the formulation of policy has shifted from

being generated within the executive arm of government or by service providers, to

now being generated at the political level with policy directions depending on the

position of the government at any one time. Whilst state-run water utilities typically

have more defined planning and reporting regimes, those utilities that are incorporated

into broader local government functions may not necessarily define goals

independently of the councils. Where goals are articulated, the interviews indicated

that there is no uniform approach across industry to incorporating organisational goals/

targets/ strategies into decision making processes. For some organisations, there is no

systematic linkage to corporate goals. For others, initiatives that addressed specific

targets, such as requirements to reduce greenhouse gas emissions, are more readily

factored into decision making. On the other hand, some organisations seek to embed

broader policies and strategies within decision making processes, and it was seen that

the culture of organisations can be critical to how broader policies are translated to

day-to-day work activities.

136

6.3.3 Second stage coding

A second level of coding (referred to as axial coding by Eriksson & Kovalainen

(2008)) followed on from initial data coding. At this stage, coding was based on the

patterns within the data with further consideration of themes, explanations,

relationships and emerging constructs. The categories and groups also formed the basis

of analytical memo writing within the NVivo functionality. Memo writing allows

linkages to be made with other relevant documentation, including documents provided

or referred to by participants, and the capture of new ideas and insights. Some further

themes that emerged through more detailed examination of the data were based on the

topics of enablers and inputs. These two themes emerged through further exploration

of responses addressing institutional settings and analysis techniques. These concepts

are discussed in the following sections.

Enablers

Based on questioning relating to the institutional framework in decision making,

interviewees provided a range of responses based on the unique perspective and

expertise that each interviewee provided. Key areas that support decision making

within a strong sustainability framework are seen to be governance systems,

leadership, organisational strategy, the regulatory setting and considerations of the

capability and skills of analysts (refer Figure 6.8). These are further discussed below

and further details from interviews are outlined in the explanatory effects matrix as

Appendix M.

Figure 6.8. Enablers

Enablers

Governance

Leadership

Organisationalstrategy

Regulatoryenvironment

Training andskills ofanalysts


Governance

Governance involves both formal systems, based on laws and regulations, and

informal systems, including interactions, customs and social norms, operating across

all levels of society (McKay, 2007). Criticisms of governance processes relating to

major project decisions have emerged in the media over recent years with calls for

greater transparency in the decision-making process and the publication of business

cases that are treated as confidential. It was noted by one interviewee that governance

failings are evident with the increasing complexity and scope of infrastructure

programs. This was attributed to a perceived lack of clear accountability when many

different parties from a range of disciplines have a vested interest in the outcome of

major projects.

The formal governance framework for the water sector is based on the legislation

of each state and territory, and varies across Australia. In the state of Queensland,

water utilities may be government-owned statutory authorities, local government-

owned statutory authorities, or may be service providers within local government. In

South Australia, a single statutory body, SA Water, has responsibility for water supply

and treatment. Those authorities that fall under state government responsibility

typically have government appointed boards whose members typically have skills

relevant to the water sector. Commentary on the role of boards in the decision-making

process was mixed. Some interviewees considered that Boards have a positive role to

play in translating broader government directions to the operations of the water

authority and can provide a different and fresh perspective when addressing major

problems. Others noted that board members often do not have the appropriate

knowledge or background to understand the content of (often complex) proposals

being put forward. Instead, the primary focus of many board members is to achieve

efficiency, which may negate the consideration of innovative and sustainable

solutions. In terms of performance, one interviewee noted that boards ‘don’t get

measured on environmental performance over and above meeting the regulated

standards’. An example of an effective approach was raised in the interviews relating

to work done by executive staff in one organisation to educate board members on

sustainability and environmental processes. This was seen to enable more effective

decision making. In the domain of local government water providers, one interviewee

noted that governance arrangements mean that the water providers are ‘one notch

138

down’ in the organisational hierarchy, providing a range of different challenges. On

the one hand, the local government water providers may have less accountability and

transparency in decision making, but on the other hand, these providers tend to be more

responsive to local issues and the directions of the local government.

Organisational structure forms part of the governance arrangements of water

utilities and may also be a key enabler of sustainability practice. It was noted that a

corporate re-structure in one water utility effectively removed entrenched silos that

previously existed within the organisation, and that the new structure allowed greater

networking and collaboration across multidisciplinary teams. The role of senior

managers within the executive arm of water entities was acknowledged by some in

terms of their ability to provide clear organisational direction. In one organisation, it

was noted that senior management had actively initiated, pursued and led the

development of a strong response to sustainability challenges, with agreement from

the board.

Governance processes also include reviews and approvals that may be required

from relevant state government departments, including treasury, for significant

infrastructure investments. Some interviewees spoke of the challenges of gaining

approvals from central government agencies where project estimates were above the

threshold dollar limits that dictate the need for formal central government project

reviews. Again, central government reviews present a risk that more blunt financial

considerations are used to assess projects, and that wider community benefits are

discounted in analysis.

Organisational Strategy and Commitment Organisational strategy is the expression of an organisation’s intentions in

achieving its core objectives over time. As a public document, an organisational

strategy has the potential to clearly state the organisation’s intentions and

commitments around sustainability to its stakeholders, employees and the wider

community. These commitments may be further developed in specific policies,

charters, statements or plans, with supporting objectives or targets that may form the

basis of regular review and reporting. Table 6.10 outlines the sustainability

commitments that are publicly stated by major water authorities in each state or

territory of Australia.


Table 6.10

Sustainability statements by Australian water utilities

Organisation Document Statement

Melbourne

Water Corporate Sustainability

statement on website ‘We consider the long term interests of the community and future generations, and our solutions seek to balance environmental, social and financial outcomes.’

South Australia

Water SA Water Sustainability

Scorecard (to 2015) ‘Sustainability is part of the way we do business. We consider the long term interest of customers, the South Australian community and future generations in our operations and solutions.

Icon Water

(ACT) (formerly

ACTEW)

Sustainability Report 2014 Sustainability at ACTEW is about delivering water and sewerage services that contribute to the health of our customers, the liveability of the region and minimise our impact on the environment. We achieve this by continually improving our processes and the quality of our services, protecting the environment and investing in the capability of our people.

Water

Corporation

(WA)

Statement of Corporate

Intent (2016/17) ‘Our purpose: Sustainable management of water services to make WA a great place to live and invest.’

Power & Water

(NT) Power and Water

website- Sustainability

and Environment

‘At Power and Water, we are always extending our efforts to minimise our impact on the environment. Most of your electricity is generated from natural gas and we continue to focus on renewable energy – primarily solar.’

Queensland

Urban Utilities 2016-2021 Corporate

Plan ‘In planning for and delivering services to our customers, we have identified a number of opportunities to embrace and challenges to overcome. These include: identifying sustainable solutions that address economic development, population growth, service delivery and economic drivers and enable our shareholders to realise their community outcomes.’

Sydney Water Sydney Water website ‘Sydney Water applies sustainability principles to its

planning and operations processes, and capital investment decision-making.’ ‘Sydney Water’s corporate goals integrate the social, economic and environmental aspects of our commitment to deliver sustainable water services.’

Some water authorities have strengthened commitments to sustainability

practice by signing the global sustainability initiative United Nations Global Compact

(UNGC) and including UN Sustainable Development Goals (SDGs) as part of

strategies and daily operations. Such commitments include a responsibility to

continuously measure progress against targets and report these publicly. The Global

140

Reporting Initiative (GRI) provides a framework for reporting, and it was noted in the

interviews that Yarra Valley Water’s Integrated Profit and Loss report presents an

alternative sustainability reporting mechanism.

Leadership

The role of those in formal leadership roles was acknowledged as an important

enabler of sustainable approaches. For one interviewee, sustainability leadership is

embedded in the culture of their organisation, and thus was seen to influence the

attraction of new staff who actively seek roles in organisations that commit to

sustainability practice. In this case, sustainability is entrenched in long term,

intergenerational practices regardless of personnel changes. For some organisations,

sustainability practice was seen to be initiated by new leaders who sought to drive

sustainability commitments that are subsequently embraced and translated to activities

across the organisation. Leadership may also be provided by key staff, who act as

sustainability champions within the organisation. Often, these sustainability

champions are seen to be driving specific sustainability initiatives rather than a

concerted organisational approach to sustainability. The leadership role of industry

organisations such as the Water Services Association of Australia was also

acknowledged by interviewees, through its advocacy role with government and

decision makers, through educating the industry and the wider community on

sustainability issues and through acting as a central hub for industry practitioners to

collaborate and share knowledge.

Regulation The regulatory setting for water providers, forms part of the governance

framework, and regulation was acknowledged by many interviewees as being a

significant sustainability challenge for water authorities. Regulation may involve

numerous government legislative and regulatory requirements such as health and

environment controls, however much of the commentary in interviews related to the

role of the economic regulator.

It was noted that economic regulation is not uniform across Australia- different

states have different models and approaches to regulation. Those interviewees who

work across jurisdictions in Australia saw a need for a uniform approach to regulation

across the country, citing the United Kingdom model with a single economic regulator

(OfWat). Examples of regulatory practice in each state were discussed in the


interviews. In the state of Victoria, the Essential Services Commission (ESC), as the

economic regulator, is moving to a more customer focused model of regulation, which

is yet to be tested. It was noted that the economic regulator in Western Australia has

an advisory role to government in relation to water pricing, in comparison to other

states where the regulatory role has greater powers. In that state, environmental

regulation is seen to provide a positive impact on practice by requiring strong

community engagement before proposals are presented to government. Reflecting on

practice in New South Wales (NSW), one interviewee noted that the role of the

environmental regulator had moved from a risk management and mitigation approach

to a more conservative, ‘no-risk’ approach requiring a much higher level of

intervention and costly works. This was in contrast to the role of the economic

regulator in NSW (IPART), which was seen to drive practice that provides the most

efficient outcome. Hence, in that jurisdiction, there is seen to be a tension in meeting

the needs of each of the various regulatory bodies.

Economic regulators typically require water authorities to submit a short-term

(usually five year) water plan that sets out a servicing strategy over that period,

together with the price impact to customers. Commentary generally indicated that the

easiest path to take is for water authorities to submit servicing strategies that purely

address efficiency requirements. This would potentially negate any opportunities to

seeker broader sustainable outcomes. On the other hand, some water utilities recognise

the disconnect between regulatory requirements and government policy that supports

sustainable outcomes. In this case, there is a need for water utilities to actively work

with regulators to negotiate preferred solutions that deliver broader community value.

At the same time, some interviewees saw that there is a role for government to provide

greater support and, potentially, funding for those projects where benefits extend

beyond the boundaries of the water provider and deliver wider community outcomes.

Training and skills of analysts Complex, non-routine projects require practitioners with broad skill sets. Across

the interviews these skills were revealed as: critical thinking and the ability to identify

the wider context of problems; the ability to lead and direct a multi-disciplinary team

or work with multiple agencies; negotiation capabilities; and the ability and drive to

develop concepts through to implementation. Others noted that those with technical

training do not necessarily deal with non-routine problems and subjective analysis.

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According to one interviewee, a project with a ‘good’ business case could not be

implemented largely due to inability of assigned project staff to deal with complex

negotiations that were required following initial planning work. In order to improve

skills and capability in business case development, one interviewee referred to a UK

model whereby the Major Projects Authority, working with HM Treasury, has been

established to build capability of practitioners working in the public sector. This

includes the identification of project leaders within infrastructure delivery agencies

and providing support to agency staff working on major projects. It was suggested that

such a model could be developed in Australia.

Consultants play a significant part in undertaking decision-making process, most

often in a supporting role providing analysis and reports to project managers within

the water utilities. Consultants effectively provide expert skills that do not reside in the

organisation or may fill resourcing gaps when organisational works loads exceed the

capacity of available staff. In some cases, expert consultants may effectively provide

an independent voice that prevents perceived optimism bias of the agency proposing a

project. Some criticisms of the use of consultants were based on the misalignment of

consultant skills with the specific task being undertaken, or a tendency by large

consulting firms to pass work down to junior staff with limited project or analysis

experience. Some interviewees spoke of the need for water agencies to improve

processes around procurement of consultants. In particular, some organisations with

central procurement offices approve tenders for consultancy services that are bid at the

lowest price, without regard for the assessment of the relevant experience and track

record of the consultants to ensure that the best-for-project consultant is employed.

Inputs

‘Inputs’ refers to the broad analysis that underpins investment appraisal and that

is critical to robust analysis. Key inputs to analysis that were identified in interviews

include cost and funding models, risk assessment, delivery capability and asset

management (refer Figure 6.9). An explanatory effects matrix providing interview

comments relating to these themes is provided as Appendix N.


Figure 6.9. Inputs

Cost and funding models

Cost and funding models were acknowledged as an important element of

business case analysis. One interviewee noted that ‘you need to bring it back to the

dollars and cents- because that’s how other people understand it’. Cost estimates

provide the basis of financial and funding models and it was noted that there is a

tendency for cost estimates to be inflated- presumably to ensure greater buffer to allow

for uncertainties that may arise. This area was seen as being much more straight-

forward, presumably based on the ability to draw on cost data from previous projects.

Of note, projects such as the Victorian Desalination plant and the North-South pipeline

that were identified as being undertaken by separate newly formed delivery agencies

have been criticised in the media for cost over-runs. However, the need to accurately

develop cost estimates for both capital works and operating works components of an

infrastructure project is central to considerations of affordability and budget processes.

For water businesses, compensatory funding for works is provided through both

general pricing tariffs and special fees and charges. Some interviewees noted that,

where projects deliver wider community benefit or overall network improvements,

there is a strong case for allocating funding from general government revenue towards

some component of works.

In developing funding models, several interviewees noted that consideration of

avoided costs associated with sustainable initiatives should also be considered. As an

example, a recycled water initiative may be proposed within a short-term

planning/pricing period and may effectively negate or defer the need for future

Inputs

Cost andfunding model

Risk

Deliverycapability

Assetmanagement

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upgrading works of infrastructure. However, the regulator, in assessing the servicing

strategy, would not recognise the long-term funding impacts of avoided costs beyond

the five-year price submission period.

Several interviewees referred to NPV analysis, whereby the time cost of money

is reflected in a discount rate applied to future costs and revenues. One interviewee

identified that the discount rates required by governments often negate any

consideration of long-term avoided works. In sustainability assessment, the use of a

lower (or zero) social discount rate has been proposed when assessing natural systems

to take account of intergenerational equity. Scenario modelling was identified as a

highly effective technique that could take account of an array of assumptions and

possibilities within analysis, including choice of the discount rate.

Cost modelling also needs to acknowledge any potential for ‘double counting’-

an example provided was based on financial analysis that included the cost of carbon,

but with an additional qualitative framing of benefits that also indicated reductions in

greenhouse gas emissions. One interviewee indicated that double counting can occur

in analysis based on an understanding of the need to maximise the benefits attributable

to an initiative, in order to gain endorsement and approvals.

Risk Risk assessment was put forward as a necessary and integral part of project

analysis. One interviewee discussed the propensity for some engineers or project

managers to misinterpret the process and outputs of risk assessment, which was

likened to the misuse of (numerical) outcomes of CBA. In this case, it was argued that

some judgements that are used to assess risk levels are subjective, but that numerical

outcomes from the risk assessment can be interpreted more definitively in decision

making. Others spoke of an inclination of decision makers and regulators (particularly

environmental and health) to adopt a risk-free approach, which may either result in

additional costs that make projects unviable or stifle opportunities for innovation. In

some instances, one item of risk may be used to obstruct a project. In projects that

involve numerous organisations, there may be one organisation that is willing to take

on the risk, whilst others are not willing to proceed on the basis of the risks presented.

If the project proceeds, all the risk is then assumed by that one organisation. Several

interviewees spoke of initiating pilot projects as a response to managing risk and

testing project viability.


Delivery Capability and resourcing

Some interviewees noted that, despite thorough analysis that justified a project,

implementation may fall over if the right skills and capability is not procured. Whilst

this may apply to technical capability, more often the problems emerge through ‘soft’

skills in negotiation and managing stakeholders and community expectations. Several

interviewees noted that their organisations were now well resourced in the area of

stakeholder and community management as part of project implementation.

Asset Management

Investment appraisal also needs to incorporate consideration of long-term

operating and maintenance requirements and include costing as part of Life Cycle

Assessment (LCA). Long term thinking should incorporate considerations of climate

change impacts. One interviewee noted the difficulties in predicting costs over the long

term (35-50 years), given the on-going debates by governments on matters such as

energy policy.

6.3.4 Final stage coding

The interview responses highlighted several key concepts that warranted further

exploration as part of a third and final stage of coding. In relation to analysis methods,

the interviews (reinforcing the results from the quantitative survey) revealed that no

uniform approach is used across industry. Hence, the research question asking, ‘what

is an optimal system approach to support project selection and decision making for

infrastructure projects?’ cannot be addressed simply through a consensus analysis of

responses. At the heart of this issue are suggestions that, where CBA is used, there

remains a level of modification and adaptation in analysis to support a preferred

direction. One approach that is gaining favour is to include a broader array of

valuations to capture environmental and social aspects. However, most interviewees

acknowledged that the valuation of environmental and social factors remains

incomplete and that values may be seen as relative rather than absolute. In addition,

interviewees generally agreed that values for ecosystem services derived for one

location do not readily translate to a different location.

A final stage of selective coding allowed for the integration of the analysis and

further refinement of the theoretical scheme. The aim of this review was to allow a

clearer picture to be built in theory building. In addition, explanatory effects matrices

were developed in line with the conceptual terms to further explore the relevance and

146

strengths of identified concepts, together with new emerging themes around benefits,

value and trade-offs. The rationale for considering value and benefits separately was

based on an understanding that responses relating to ‘benefits’ appeared to relate to

two differing concepts. On the one hand, benefits were described in terms of ‘KPIs’ or

broader strategic outcomes of projects and programs in line with project management

methodologies, such as PRINCE2 and Managing Successful Programmes (MSP)18. On

the other hand, benefits were also described in terms of monetised or non-monetised

values forming part of the CBA equation for Benefit Cost Ratio (BCR) as described in

Equation 6.1:

BCR = ∑"#%&'&()*+∑"#,-+*+

where

PV benefits = present value of benefits

PV costs = present value of costs

Equation 6.1 The Benefit Cost Ratio (BCR) used in CBA (from Pearce et al. , 2006)

The third stage of coding sought to understand the basis and meaning of these

concepts. Furthermore, the final stage of coding also sought to further explore the

concept of ‘trade-offs’ as discussed by several interviewees but not previously

identified in the initial concept model.

Benefits

Benefits were identified in terms of developing project-level KPIs that linked

with organisation strategies or objectives. Examples included assessing a project’s

contribution to meeting greenhouse gas emission reduction targets, contributions to

urban cooling, or addressing aspects of vulnerability for representative areas of the

local population. The Victorian Government’s Investment Logic Mapping (ILM)

process for benefits mapping was suggested as an effective methodology to link

desired project outcomes (KPIs) with organisational objectives. Some interviewees

indicated that this process was also being introduced, to some extent, to other

18 PRINCE2 (Projects in Controlled Environments) is a project management methodology adopted for projects delivered by UK government agencies, and is also used in public sector works in Australia. MSP (Managing Successful Programmes) applies similar practices at a programme level.


jurisdictions across Australia, although other interviewees indicated that it was less

likely to be used in the water industry. (This view conflicts with the findings from the

survey conducted in the first phase of the research, where there was overall agreement

that investment management/ logic was generally used and considered to align with

sustainability practice). One interviewee also noted that project KPIs may change over

time, particularly when projects are moved between organisations (such as when the

Gold Coast Desalination project moved from local to state government), when

circumstances change such as the onset of drought, or when organisations restructure,

reflecting a change in organisation priorities. Figure 6.10 outlines the categories of

benefits that were identified by interviewees, and Appendix O provides further details

on responses within a results explanation table.

Figure 6.10. Benefits

Community benefit refers to the widest dimension of benefit that goes beyond

organisational boundaries and considers the broad context of projects in terms of the

networks with which they interact, and the contribution of a project to societal

improvement. Examples of community benefits that were discussed, included

contributions to liveability, contributions to wider environmental outcomes such as

providing habitats for protected species, urban greening, improving health outcomes

and quality of life. Of these, liveability was presented as a key area of current focus

for the water industry. One interviewee noted the difference between liveability and

sustainability, in that ‘liveability is defined by the community’, whereas ‘sustainability

is about intergenerational equity and resources’. In this case, several interviewees

spoke about the challenges in developing water projects that contributed to an area’s

liveability aspirations. As an example, for central Melbourne, liveability may be about

Benefits

Community

Customer

Business

Drivers Objectives

148

increasing urban greening, but for other areas, liveability aspirations may be more

focused on reducing bill stress.

Customers for a water business may include direct customers- both residents and

businesses- for whom water services are provided, developers seeking to connect to

water services or anyone interacting with the business. One interviewee stated that

their organisation regarded customers and the community as one. Aspects of customer

benefit that were raised by interviewees include providing a diversity of supply

options/ contingency supplies, contributions to peri-urban land aggregation and

agricultural productivity, and consolidation or bringing forward of servicing for

greater efficiency and to prevent duplication or redundant works.

Water businesses are public entities with monopoly powers which, for some,

require a social licence to operate, particularly in that some operations or activities

may have negative impacts on community segments. Such a licence is cultivated

through efforts to build legitimacy and trust with the community and requires on-going

efforts to develop and manage. Projects may contribute to business benefits and the

social licence to operate through responding to local community priorities, and

providing leadership on issues of wider community concern. Yarra Valley Water’s

Choose Tap program was cited as an example of a water authority looking more

broadly in promoting environmental and health benefits, but at the same time building

legitimacy of its operations and services with its community. (This program seeks to

educate the community on the benefits of tap water when compared to packaged sugar

drinks.) Interviews revealed various contributions to business benefits from

infrastructure projects, including building capability and knowledge of staff to

undertaking innovative and transformational initiatives that position water businesses

as industry leaders.

Value

The concept of value, together with extensions such as value capture, value

proposition and valuation, was a central theme in all interviews conducted. The ability

to fully represent the value created from infrastructure initiatives continues to be a

critical challenge of the investment appraisal process. In response to this challenge,

some interviewees promoted the need to convert value into monetary terms across

economic, environmental and social domains as a central platform for analysis. Others

indicated a level of comfort in analysis that combined monetary valuation with


qualitative analysis on aspects that were considered difficult or impractical to measure

or monetise. Indeed, some interviewees noted that before economic regulation was

introduced in the water industry, decision making was based largely on both qualitative

and quantitative considerations, underpinned by an understanding of the need to

address community values. Such an approach would appear to align with Triple

Bottom Line (TBL) assessment.

One interviewee noted that the Victorian Government had recently introduced a

Value Creation and Capture Framework that states that the government is

‘systematically harnessing the potential of its investment to create additional value for

the community’ (State of Victoria, 2016). Furthermore, the framework identifies value

creation as

• Economic- though increased growth and job opportunities and improved

workforce participation;

• Social- through provision of public housing, safety and recreational

infrastructure; and

• Environmental- through greening and enhancement of natural

catchments, water or energy efficiency, climate adaptation and decreased

greenhouse gas emissions.

Figure 6.11 outlines the key themes around ‘value’ from the interviews that are

explained in more detail in the following discussion; Appendix P provides further

details from interviews collated in an explanatory results matrix.

Figure 6.11. Value Creation

ValueCreation

EconomicValue

DevelopmentValue

EnvironmentalValue

Social Value

Public Value

150

Economic Value

Economic value relates to the direct and indirect financial revenue streams

associated with an infrastructure investment. For a water business, these may include

billing revenue from users (residents and businesses), together with developer charges

and any further revenue streams from use of facilities and services. Sectors such as

transport, that have no direct revenue stream, use ‘benefits’ that are based on traffic

modelling for improvements for transport network users including aspects such as

travel time savings, vehicle operating cost savings and travel time reliability

improvements. Some jurisdictions develop guidelines for CBA that outline what may

be assessed within CBA assessments. Other items that may be incorporated as values

in CBA include cost information and modelling around greenhouse gas emissions,

energy use, water quality improvements, air quality improvements nutrient treatment

and the like.

In the case of recycled water, it was noted that the significant effort and cost

involved in developing the product of an alternative water source needs to be matched

by efforts to develop a market for that product. In one example cited, no market could

be found, and in another example, a highly regarded agricultural ‘food bowl’ was

created through working with local land owners.

One interviewee also referred to work that incorporates the Total Economic

Value (TEV) of water, which refers to ‘the sum of the value provided by a variety of

uses (direct and indirect) and from the other ways in which a good provides value to

us without being used or consumed (non-use values)’ (Hardisty, 2010, p. 88). Direct

use values in TEV link to consumptive use associated with market values such as

potable use, agriculture or industrial use, together with non-consumptive use attributed

to aspects such as recreational uses (fishing, swimming etc). Indirect use value

associated with TEV is attributable to regulating functions such as flood management,

and non-use values relate to existence, altruistic and bequest values that include values

placed on knowing that a water resource exists, or that it will be preserved for future

generations. Values for direct non-consumptive uses have been derived in various

studies across the world, often using market use value estimates, and the range of

values that have been derived shows that water scarcity can affect water valuation

(Hardisty, 2010). DEFRA’s Total Economic Value Framework, which is consistent

for use in a CBA context, is provided in Figure 6.12.


Figure 6.12. DEFRA’s Total Economic Value Framework (from DEFRA (2007))

Several interviewees stated that their organisations had carried out economic

analysis using Willingness to Pay (WTP) studies of customers. According to the

Department for Environment Food and Rural Affairs (DEFRA) (2007), the net sum of

WTP or Willingness to Accept (WTA) provides a measure of the Total Economic

Value (TEV), which represents the total gain in well-being, or the value of the

marginal change associated with a policy or initiative. Most often, these assessments

of value are used as part of pricing submissions to the regulator. It was noted that, in

one instance, where customers had indicated a preference for tree planting to address

urban cooling through a WTP study, the regulator had not accepted a proposal for

urban greening works as it was not seen to be part of core business obligations. Using

WTP studies is seen to require a degree of critical review and caution. According to

one interviewee:

And regulators, just like we all do, struggle with how we quantify these

amounts, not only the environmental stuff. But how do you quantify the

customer’s or community’s willingness to pay? What those studies show is

that yes, you can get willingness to pay but Willingness to Pay is different to

whether I am happy to ... I am physically going to pay.

Development value In economics, the hedonic pricing method links value with market pricing, and

most commonly with the property market. Studies invariably show that proximity and

152

accessibility to infrastructure services has an impact on property values. This ‘uplift’

in property value has the potential to provide additional revenue sources to various

levels of government through property taxes, special charges and rating mechanisms

based on property value. Interviewees spoke of using hedonic pricing methods to

determine the premium that property owners may pay to enjoy the benefits of a specific

infrastructure investment.

Interviews revealed that, for one project, the consideration of increases in

property value could not be used alone to justify a significant project, due to the limited

number of properties identified as directly benefiting from the infrastructure works,

and considerations of the low base value of properties in the area. For another project

in a ‘brownfield’ inner-urban area, uplift in property value, together with the increase

in customer base created by new development, were seen as factors that contributed to

the justification of works associated with sourcing alternative water. In this example,

it was also noted that a tension existed whereby infrastructure investment was creating

value for private developers (who are short-term owners and not the end user of the

service), and that water authorities, and indeed government in general, did not

necessarily have revenue mechanisms to capture the value created.

A further aspect of development value is the land and asset holdings that have

been retained by infrastructure providers, which are located in high-demand growth

corridors, and so may be seen as having the potential for urban development. In this

case, a further tension arises whereby governments may seek to realise short term

revenues through property sales in lieu of setting aside those land assets for future

planned or unforeseen public uses. The need for a long-term land use plan for the site,

taking account of local community values, was considered to be essential where

property rationalisation plans were being pursued.

Ecological value

The interviews revealed various approaches to the development of quantitative

models to effectively manage environmental systems. In contemporary waste water

treatment practice, nutrient removal (nitrogen and phosphorous) provides a good

example of the use of market-based pricing mechanisms in decision making. Through

the understanding of nutrient treatment costs, together with the need to limit discharges

into natural water bodies, developer charges have been effectively applied to

development that impacts on the water quality of receiving water bodies. According


to one interviewee, SA Water’s focus on recycling is driven by this understanding of

the impacts of nutrients on the gulf ecosystem. Yarra Valley Water’s Integrated Profit

and Loss (IPL) report was also provided as an example whereby a quantified model

has been developed for natural, social, human and financial capital of the business in

order to influence decision making and support efforts for a ‘restorative’

environmental approach. As noted previously, the Social and Environmental Tool

(SET) is available and used within the water industry to apply monetary value to

environmental and social features. It was also noted that the City of Melbourne has

completed a study that assigns monetary value to its trees.

Whilst there was broad agreement that monetary valuations applied to

environmental assets can be useful in various forms of analysis, many interviewees

noted the limitations of valuations, particularly when applied as an absolute value in

the context of CBA. These limitations included

• The application of values derived from one region (for example, items such as

seagrass) to another geographical area is not always relevant or useful;

• Data availability may be limited – for example, census data is released much

later than when data is collected. The use of old census data may not reflect

current trends;

• Survey results (with inputs into assessments such as WTP) may not reflect

actual attitudes that are gauged through direct communications with local

communities;

• Some assets cannot be valued- as an example, the Western Treatment Plant has

the second highest bird density in the country after Kakadu- one interviewee

questioned how this could be valued accurately;

• The attribution of value is difficult to assess – as an example, there is on-going

research looking at the contribution of rain water tanks to waterway health; and

• The treatment of values associated with spill-over effects beyond the project

boundaries is often neglected.

Social value Some interviewees noted that selected aspects of social value relating to

infrastructure investments may be identified and assigned a value. As an example,

154

health improvements are readily measured by health departments, and hence projects

that provide value around health and wellbeing can draw on that data. The Social and

Environment Tool (SET) developed initially by Water Corporation (WA) has been

made available across the water industry and includes an Excel spreadsheet of values

based on a literature review to cover social values that are relevant in water-cycle

planning decisions. Table 6.11 shows social externalities and the bases for evaluation

that are identified in Hardisty (2010).

Table 6.11

Selected social aspects and means for valuation (from Hardisty (2010))

Social Externality Cost Evaluation

Health impacts from air emissions Medical costs, lost production and earnings

Health impacts from emissions to land Medical costs, lost productivity and defensive

expenditures

Displacement and inconvenience Displacement from homes or loss of traditional

or spiritual lands

Loss of recreational value Cost of use and enjoyment

Noise Amenity impacts, health costs

Odour Amenity impacts assessed through property

prices

Aesthetic Value Property and recreational values

In relation to the wider values provided by water businesses, one interviewee

stated:

.. if we want to think of ourselves as water authorities providing more than

water- drinking water, taking away sewage and treating it, flooding services,

and waterway services and we want to think about in terms of how we actually

contribute to the urban form, and how we use water for parks and recreation

and how we work with councils so we start thinking about it. I think about in

terms of Maslow’s hierarchy in that we have done some of the basics, we need

to move into more complex areas where it is cross-organisational and we are

delivering desires more than basic needs.


From the interviews, key areas in the social domain where water authorities may

add value were identified in the areas of:

• Liveability;

• Contribution to urban form and planning intent;

• Community amenity;

• Health outcomes;

• Crime outcomes (in priority policy areas such as domestic violence);

• Visual amenity;

• Customer service;

• Parks and recreational amenities;

• Indigenous cultural values.

On these matters, there has been some consideration across the water industry

about how to ascribe monetary value, however there was overall agreement from

interviewees that these values are difficult to translate between locations. On aspects

such as urban form, it was considered that the city of Melbourne values this highly,

whereas other areas in Australia would place less value on urban form. In relation to

liveability, several interviewees noted that different communities, and indeed different

people, will ascribe value differently. In addition, values change over time. As an

example, it was noted that thirty years ago in Brisbane, there was community

resistance to excessive road signage, but now electronic signage proliferates along

major motorways.

In relation to cultural values, several of those interviewed spoke about the

recently released Water for Victoria policy that elevates the importance of managing

water resources with regard to aboriginal cultural, spiritual and economic values. At

the time of interviews, there was little clarity on how this would translate to project-

level decision making for water authorities. It was, however, noted by several

interviewees that New Zealand is an exemplar in including indigenous values in water

infrastructure works. An example was given of a sewerage treatment project, where

designs reflected New Zealand Maori values in areas such as discharge channels that

incorporated rocks for spiritual cleansing, and where discharges were modified to take

156

account of impacts on local shellfish that were of high importance to the local

indigenous people.

Trade-offs

The topic of trade-offs was discussed in several contexts. Some interviewees saw

trade-offs in terms of cross-organisational transactions based on aspects of cost

shifting, negotiations and considerations of who ultimately takes responsibility for

leading projects. Trade-offs are also considered within project analysis, whereby the

analyst assesses and prioritises a range of impacts and benefits associated with the

infrastructure initiative. Figure 6.13 outlines the key themes on trade-offs, and

Appendix Q provides more detail on responses.

\

Figure 6.13. Trade-offs

Several examples of projects were highlighted, whereby responsibility and

leadership changed over time. In these instances, the key problem and subsequent

solutions were defined and developed by the initiating organisation, but over time

when benefits were more clearly defined, it became apparent that these projects

aligned more closely with other organisations. An example that was provided is the

Gold Coast Desalination project, initiated by Gold Coast City Council. In this case, as

the millennium drought in South East Queensland became more serious, and the state

government saw the need to address drought security at a broader, regional level, and

took over responsibility for the project. In another, the Bunyip Food Bowl in Victoria,

it became apparent that the project was more aligned with urban land planning around

peri-urban agricultural land, and hence responsibility moved from the water authority

to local government. In these cases, leadership was required to manage the complex

Trade Offs

Who leads

What are theboundaries

What valuesare non-

negotiable

What valuesare negotiable


trade-offs required for the transition of the works from the initiating organisation to

the organisation taking responsibility for delivery.

Where projects cross organisational boundaries, negotiations may involve

stakeholders, community representatives, businesses and elected representatives. In

the case of recycled water initiatives, the viability of projects may be based on certain

businesses with high water demands agreeing to utilise alternative water sources. In

this case, where agreements cannot be negotiated, projects fall over. ‘Cost shifting’

refers to a practice where the governing entity that is responsible for a particular

service (such as a state government) defers its responsibilities to another entity (such

as local government) effectively moving the responsibility for funding and

maintaining that service to the other entity. In integrated water management, where

numerous organisations may support, and benefit from, an infrastructure initiative, the

cost shifting impact may fall onto a water utility that is most willing to progress the

initiative, despite the benefits accruing across organisational boundaries. Interviewees

spoke of the impacts and inequities of cost shifting, and noted the opportunity for better

practice whereby funding is apportioned to those who benefit. A more equitable

outcome would involve all those who benefit from a service contributing to its costs,

however most interviewees considered that, in practice, organisations that initiate

projects often bear the full costs. In addition, it was noted that where a project delivers

wider community benefits, there is a strong case for government to contribute to a

proportion of works that reflect those benefits.

As part of project analysis, several interviewees spoke about the trade-offs that

are required when assessing the extent of impacts and benefits associated with an

infrastructure initiative. In this case, various components of project scope need to be

assessed against each other, such that some features may either be retained or omitted.

As an example, projects may be opposed by interest groups on the basis one

environmental ‘trump card’ when, otherwise, a range of highly significant positive

benefits are to be realised. Consequently, there is a need for the analysis to carefully

address key priorities, and linkages to wider benefits. It was asserted that trade-offs

are made between certain items that are ‘non-negotiable’ and not able to be omitted or

substituted and other items or values that may be negotiated away.

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Implementation and reporting

Across the project life cycle, different project teams are typically responsible for

managing each stage such as planning and approvals, business case development,

capital works delivery and management of operations. Each stage requires different

skills and attributes , and organisational structures reflect this. The interviews revealed

that robust analysis at the planning stage needs to be supported by concerted efforts in

implementation, project monitoring and reporting that aligns with corporate

objectives. The need for planning and business case assumptions to translate to those

managing the delivery and operations stages is an important feature of the transition

between project stages. Key themes that emerged are outlined in Figure 6.14.

Figure 6.14. Implementation

Corporate reporting in the form of Annual Reports may be supplemented by

sustainability reporting, either using Global Reporting Initiative (GRI) guidelines or

bespoke processes such as Yarra Valley Water’s Integrated Profit and Loss (IPL)

report. Sustainability reporting is seen as an effective mechanism to understand how

an organisation is performing against targets or goals, and to inform future priorities

in investments. As sustainability reporting continues to evolve, the inclusion of

reporting that addresses the effectiveness of projects and programmes in addressing

corporate objectives was identified in the interviews as an area that could be addressed

in future reporting.

Where costs and benefits are projected in the early stages of project

development, there is no systematic process for assessing costs and benefits at the

completion of projects. Processes such as post-implementation workshops and reports

Implementation

SustainabilityReporting

Ex-PostAssessment

Proof ofConcept

(Pilot)


on ‘lessons learned’ may be used, and these may guide the development of future

business cases. However, one interviewee noted that the benefits that are initially

projected to be attributable to a project (such as reduction in pollutants) are not

generally assessed or measured after the project is completed.

Some interviewees identified the opportunity to undertake pilot projects, as a

means to better assess the benefits and value provided by new and untested approaches

to infrastructure design or delivery.

6.4 SUMMARY OF RESULTS

The mixed methods approach to this research has provided a broader

understanding of current practice in relation to investment decision making. The initial

survey provided insights into current practice to build on the conceptual model that

was developed through the literature review and to inform the interview process. The

participants in the first stage of research were well qualified to comment on current

practice relating to analysis techniques that support business case development. In

order to address the two research questions, the second stage of research provided

greater clarity on the elements of a decision-making model. The interviewees that were

recruited for the second stage represented a range of views and perspectives in the

broader investment decision-making environment, allowing a deeper understanding of

the issues around current practice.

The results of both the surveys and interviews provided rich data for analysis

and the development of a model for integrating sustainability in investment decision

making. Some aspects of the results align with the findings from the literature review.

Of note, the variety of methods applied in practice and the use and interpretation of

CBA are findings that align with international research. The adoption of participative

methods as part of front-end decision making has been widely supported and embraced

by those interviewed from the water industry. At the same time, it was acknowledged

that implementing participative processes is extremely difficult and time consuming,

but contributes to making the right decisions. This appears to reflect a level of maturity

within the water industry in understanding the need to engage with customers, and the

wider community, on matters that other infrastructure sectors would consider to be

confidential and hence not suitable for input by end users. The extensive discussions

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in interviews on ‘trade-offs’ led to further reflection on practice and referral back to

literature on that topic.

In summary, the concept model that was developed through the literature review

provided a useful starting point for the research design. As the research progressed

through both the initial survey and subsequent interviews, new concepts emerged and

greater clarity was provided on relationships between themes. The next chapter

introduces these concepts and presents a new model for integrating sustainability in

investment decision making.


Chapter 7: A Model for Sustainability Investment Appraisal

7.1 INTRODUCTION

This research was initiated to critically examine current practice in investment

appraisal and to assess how investment decision making may be framed to incorporate

sustainability. The literature review highlighted shortcomings in current practice

whereby infrastructure providers make formal commitments to address sustainability

challenges, and yet investment appraisal is informed by mandated guidance with an

emphasis on financial or economic outcomes. As such, new or emerging infrastructure

solutions that address sustainability challenges may be difficult to justify, as the wider

values of sustainable infrastructure solutions cannot be fully quantified.

Building on the results of the research, this chapter outlines an alternative

approach to the application and interpretation of the concepts of benefits, value and

trade-offs within the appraisal process. In addition, a sustainable approach incorporates

a high level of participation throughout the appraisal process. Current practice

conflates aspects of benefits and value, in that monetised values are addressed as

benefits in standard CBA practice. It is proffered that, in sustainability practice,

• benefits relate to wider outcomes that align with sustainability objectives;

• values are plural with economic, ecological and social/ cultural dimensions

that are often conflicting. These cannot be captured by a point measure; and

• trade-offs recognise that decision making is complex, and should not be

allocated to a single decision maker. Instead, deliberative processes should

be employed with considerations of shared value of benefits accruing to the

community, customers and the infrastructure provider.

The model developed through this research acknowledges that methodology

alone is not enough, but that there are supporting institutional factors that need to be

in place. Using the findings of both the survey and interviews, a model has been

developed that also incorporates the elements of enablers and inputs to the decision-

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making process. The outcome of this research is a model that builds on concepts of

public value, business models for infrastructure and the importance of the integrating

aspects of sustainability across the economic, ecological and social domains.

This research has focused on the water sector based on the unique governance

framework and regulatory processes that frame investment practises in that sector. The

problems in justifying new approaches to managing water resources through initiatives

such as integrated water cycle management (IWCM) has previously been discussed in

Chapter 4. The model is intended to also apply to other infrastructure sectors such as

the transport sector, energy sector, coastal infrastructure and others.

In this chapter, a summary and comparison of the results from the two phases of

research is briefly presented, showing how these results complement each other. The

discussion then addresses the concepts of benefits and value, and presents a new

approach termed Sustainability Investment Logic. An overall sustainability appraisal

model is then outlined and the elements of the model are described in greater detail.

This research contributes to knowledge by addressing ongoing calls for new

approaches to investment appraisal. New approaches are needed in providing

sustainable solutions to infrastructure challenges. These need to take account of long-

term issues such as the impacts of climate change, recognise the need to more

effectively manage natural resources in urban environments and respond to community

concerns and aspirations.

7.2 SYNTHESIS OF THE TWO RESEARCH PHASES

The staged approach to the research sought to separately address the two

research questions:

1) Do corporate sustainability goals stated by infrastructure agencies translate

to project level decision-making in the pre-investment stage for


2) What is an optimal system approach to support project selection and decision


The survey forming part of the initial research phase illustrated that, although

many organisations have adopted corporate sustainability goals and targets, these were


not always reflected in investment decision making. This understanding was

beneficial for the second phase of research:

• A broader group of interviewees were purposefully selected in order to

represent organisations with strong sustainability commitments AND

where the individuals were actively seeking to reflect these commitments

in decision making and project outcomes; and

• Additional interviewees were selected to reflect on general industry

practice through their knowledge of practice across many water

businesses.

The benefits of a sustainability approach were reinforced through both phases of

research. The societal benefits of sustainability are well documented, and are

addressed later in this chapter. Many research participants also acknowledged that

infrastructure businesses benefit from committing to sustainability outcomes, in that

legitimacy and trust can be developed through stronger relationships with local

communities. Both the survey and the interviews provided universal agreement that a

sustainability approach involves participation by stakeholders, including the wider

community, throughout the decision-making process.

The survey provided a mixed response on whether sustainability goals of

organisations are translated into the analysis that supports investment decision making.

Less than half of those surveyed stated that corporate sustainability commitments are

integrated into investment decision making. Hence, there is currently no systematic

approach to sustainability assessment as part of the business case. The survey and

interviews revealed that, across the industry, there is no uniform approach to

investment analysis. In terms of analysis techniques, the survey in the first phase of

research showed that a range of techniques are employed to undertake analysis. Some

organisations use either CBA or MCA and others use both techniques. Hence, some

organisations adopt methodologies that are seen as more subjective (Triple Bottom

Line and MCA), whereas others seek to adopt approaches aligned with formal

rationality (CBA or variants such as Advanced CBA). One respondent to the survey

indicated that the choice of technique was dependent on the problem being addressed.

The interviews also confirmed that the analysis techniques vary more widely, and that

some organisations use different techniques at different stages of project analysis. In

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one case, MCA is used in the early planning and options analysis stage, and then CBA

is used to support decision making when a project advances into the capital works

programme for delivery. The choice of methodology is based on a range of institutional

factors, including governance frameworks and regulatory settings. For projects

identified to have strategic importance to an organisation, the interviews revealed some

common approaches to analysis and enablers for success.

In comparing responses from each phase of the research, one theme provided

markedly different responses. Questioning regarding the use of investment

management standards (such as those aligned with methods prescribed through the

Victorian Government’s Investment Management Standard framework) provided

different outcomes from each stage of research. Responses from the survey in the first

stage revealed that Investment Management techniques (including problem definition

and benefits assessment) are uniformly used to support analysis in investment decision

making (with 100% agreement from respondents). The interviews, however, revealed

that no formal guidance to Investment Management was used or adopted in practice

within the water sector. Instead, interviewees spoke of any overall intent to align

investment decision-making practices with corporate objectives. Some interviewees

noted that the state governments typically require that the Investment Management

Standard guidance only applies to High Value/ High Risk projects (that are over

$100m in value) and that the majority of projects delivered by water utilities came

under that threshold. On this basis, there appears to be a growing awareness and intent

to use investment management techniques, but that the actual application of investment

management techniques is still evolving in the water sector.

Table 7.1 summarises the responses from both phases of research in relation to

questions of the benefits of a sustainability approach and analysis techniques employed

to incorporate sustainability.


Table 7.1

Comparison of Quantitative and Qualitative results

Survey results Interview results (broad themes)

Why Sustainability

Sustainability provides long-term cost savings

Sustainability provides reputational benefits for

organisations

Sustainability provides environmental benefits

Sustainability provides a means to manage

climate change impacts

Sustainability incorporates community values

Sustainability builds value for the business in

managing resources more effectively

Some organisations see sustainability as part of

their branding

Sustainability is linked to liveability, an

important focus in the water industry

A sustainability focus aligns with resilience

Sustainability provides a long-term view and is

about leaving a legacy/ intergenerational equity

Sustainability is linked to environmental

enhancement and restoration

How important is the role of participation (by stakeholders, community etc) in decision making

Important/ critical Critical- organisations are looking at engaging

better

How relevant is the role of “Investment Logic” in decision making?

Relevant/ highly relevant No real understanding of formal investment logic

methodologies although there is strong

agreement that decision making needs to link to

corporate objectives.

What constitutes a sustainable approach in analysis techniques?

Various responses, but no uniform agreement:

• MCA

• CBA

• Life Cycle Assessment

• Incorporation of sustainability initiatives

Various responses:

• MCA (by some)

• TBL (by some)

• Advanced CBA (by some)

• LCA (generally agreed)

The literature review revealed that front-end decision making for projects, where

the business case provides supporting analysis, is critical to the strategic success of

projects. For those organisations that clearly commit to sustainability goals, achieving

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sustainability outcomes through an organisation’s portfolio of projects is linked to

strategic success. In addressing the first research question, the responses to both the

survey and interviews revealed a spectrum of approaches to incorporating

sustainability in decision making. For some, the sustainability goals articulated by

organisations translate systematically to investment decision making. For others (more

than half of those surveyed), corporate sustainability goals only sometimes translate to

investment decision making. In addressing the first research question, it is clear that a

gap remains in practice to systematically translate sustainability commitments, goals

and targets to decision making at the front end of projects. With no universal approach,

the challenge remains to provide clear direction and guidance to infrastructure

providers on how sustainability may be incorporated into project selection and

decision making for infrastructure projects within a strong sustainability framework.

The sections that follow address this second research question.

Both phases of research highlighted some of the barriers that exist to stifle

considerations of sustainability in investment decision making. Many of the barriers

that were identified relate to resourcing- that is, having sufficient people with

appropriate capabilities to do the analysis and having sufficient budget to allow for

implementation. In addition, a key concern for water industry practitioners is the

regulatory oversight that often determines the methods of analysis that may be

employed. It is not within the scope of this research to explore these barriers in any

further detail, and this could be a matter for further research. Instead, this research

focuses on those factors that contribute to sustainability practice.

7.3 SUSTAINABILITY- A REFRESHED COMMITMENT

History provides numerous examples of civilisations that have emerged and

ultimately failed due to complex socio-political processes combined with the need to

manage limited resources effectively. Whether framed in terms of traditional beliefs,

philosophy or science, considerations of societies living in a balanced co-existence

both with nature and each other are compatible with models of sustainability. Since

the emergence of sustainability as a concept in the 1970s, with both the publication of

the book Limits to Growth by the Club of Rome and the United Nations Conference

on Human Development in Stockholm, commitments to sustainability continue to

evolve in the public sphere. With no single definition that is applied universally,


sustainability continues to be subject to a range of interpretations that may align with

the dominant stance or culture of an organisation at a point of time.

The interviews conducted through this research identified a ‘waxing and waning’

trend in terms of organisational commitments to sustainability over recent years. For

some, the term ‘sustainability’ is seen to be losing prominence, but the concept remains

alive. An initial scaling down of sustainability roles or titles in organisations has been

observed more recently, with new roles being created in areas such as liveability and

resilience. Infrastructure providers typically employ staff from a range of disciplines

and with various levels of training. For those staff members who do not see their

positions as relevant to sustainability, the concept may be difficult to understand, hence

breaking it down into components that include resilience, disaster management, risk

management, resource management (circular economy), liveability and community, is

seen to make the understanding of sustainability more tangible. On the other hand, for

some organisations, sustainability will always be integral to operations, regardless of

overall industry trends. In the case of one water utility described in the interviews,

leadership and management practices form part of an organisational culture that drives

a commitment to sustainability, and practices such as recruitment ensure that people

with a passion for sustainability are attracted to work in that organisation.

The release of the United Nations Sustainability Development Goals (SDGs) in

2015 has provided a major step for infrastructure providers to revitalise efforts that

address sustainable development in their operations. The SDGs form part of the UN

General Assembly’s 2030 Agenda for Sustainable Development, and the 17 SDGs aim

to address poverty, protect the environment and create opportunities for all, through

promoting sustainable, inclusive and equitable growth, whilst also tackling climate

change. These global goals set a framework at global, national and local levels for

sustainability and are now reflecting on government policy in Australia. Hence,

infrastructure providers have joined a growing list of companies across the world who

have committed to the United Nations Global Compact forming the world’s largest

corporate sustainability initiative. The UN Global Compact requires organisations to

commit to ten universal sustainability principles, together with supporting the UN

SDGs. For the water sector, SDG 6 (Clean Water and Sanitation) is a key priority, but

other goals also remain relevant, particularly SDG 11 (Sustainable Cities), SDG 13

(Climate Action) and SDG 17 (Partnerships). Of note, SDG 6.5 sets a goal to

168

universally adopt integrated water resources management by 2030. A further feature

of the SDGs is an acknowledgement of the linkages that exist between various goals

and targets, and this may drive efforts to ensure better integration in sustainability

practice across sectors.

The SDGs also present the opportunity for governance frameworks to respond

through both goal setting in statutory instruments and policy formation. At a national

level, the Australian Government has committed to present its first Voluntary National

Review (VNR) at the UN High Level Political Forum (HLPF) in July 2018 and detail

Australia’s progress in achieving the 2030 Agenda. This reporting will require

concerted efforts to coordinate across commonwealth, state and local government

levels, to assess how public sector agencies are addressing SDGs. A key focus of the

Australian Government’s reporting are the public and private sector organisations that

have signed the UN Global Compact, demonstrating commitment and leadership to

sustainability. In the Australian water sector, both Yarra Valley Water and Melbourne

Water are signatories to the UN Global Compact. The SDGs provide a renewed focus

on sustainability and its role in addressing global problems. The challenge for

infrastructure providers is to translate these commitments to project level decision

making.

For infrastructure providers, strategic planning and goal setting for sustainability

may be expressed through a framework of corporate plans, policies and targets,

together with reporting on progress on a regular basis. The articulation of a clear

framework for sustainability aspirations provides an essential starting point for guiding

the operational sustainability responses for organisations. For example, Melbourne

Water state:

We consider the long term interests of the community and future generations,

and our solutions seek to balance environmental, social and financial

outcomes.

However, corporate plans and reports illustrate a wide range of responses to

sustainability, and individual organisations may reflect unique priorities and

viewpoints that relate to local issues. For some, sustainability is associated with

singular dimensions such as financial sustainability or ‘green’/ environmental matters,

whereas other organisations may consider sustainability in terms of dualities such as

green economy. A broader understanding of sustainability aligns with ‘triple bottom


line’ thinking that incorporates social, environmental and economic dimensions. Even

so, notions of weak and strong sustainability prevail. Strong sustainability is

characterised by a fully integrated assessment of the three dimensions at both a

strategic and an operational level. On the other hand, weak sustainability may be

characterised by considering only selected items within the three dimensions of

sustainability where selection is based on ease of assessment or measurability.

As organisations make commitments to sustainability, there is an expectation

that they will follow through and implement sustainable practices. Projects and

programs of work are key mechanisms for infrastructure providers to realise

aspirations outlined in corporate plans. In project management, it is widely understood

that decision making at the front-end of projects is critical to ensuring long-term

project success through delivering benefits and creating value. Hence, decision making

that is based on the findings of the business case for infrastructure investments is

critical to optimising sustainability outcomes. A sustainable approach requires the

assessment of a broad range of solutions ranging from ‘do nothing’ to policy initiatives

(such as demand management or charging mechanisms) to ‘hard’ infrastructure

solutions.

Some sustainability initiatives may involve new or non-traditional approaches to

design or delivery or may involve the re-purposing of redundant assets. The New York

High Line is a notable international example, where a disused rail line was converted

into a linear park that has been embraced by the local community and visitors alike.

In Australia, the Greening the Pipeline project in Melbourne has been initiated to

transform an outfall sewer reserve into a parkland, where efficient water management

practices can be showcased. In the short term, investments in such initiatives may

require significant investments with no real returns through direct revenue. Over the

long term, multiple benefits may be realised. These may include

• Long-term cost savings in terms of operations and maintenance, or

removal of ageing assets;

• Environmental benefits such as the reintroduction of indigenous species

of flora and fauna and improved biodiversity outcomes;

• Increasing the vegetation coverage in urban areas and hence addressing

urban heat island effects that will increase with climate change impacts;

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• Opportunities for local communities to come together through the

provision of community gardens and other communal activities; and

• Enhancing the reputation of infrastructure providers with increased

levels of trust in the local community.

Despite the benefits that are increasingly being realised through sustainable

projects, an integrated approach to sustainability assessment remains elusive. The

importance and relevance of sustainability is based on its ability to better frame

responses to complex problems such as climate change, resource depletion, population

growth and social changes. Sustainability practice involves an understanding that both

analysis and decisions occur in complex, open systems. For investment analysis,

infrastructure projects contribute to a wider network with linkages and inter-

relationships between the elements of the system under assessment. However, current

approaches to investment analysis often favour approaches that focus on a singular

dimension of financial prudence. In decision making, a range of stakeholders,

including community users, have strong interests in the outcome of major investment

decisions. And yet, institutional factors, such as regulatory oversight, continue to

favour efficiency and short-term thinking over the inter-generational considerations

that sustainability requires.

The literature has revealed various analysis approaches that have been proposed

over time to frame sustainability assessment. Many approaches fail to address the

‘integratedness’ of sustainability. Sustainability assessment that uses selected

indicators within the economic, environmental and social domains based on

convenience and measurability present a ‘weak’ approach to sustainability analysis.

Alternatively, a ‘strong’ sustainability approach to sustainability assessment, proposed

in this research, seeks to identify the full range of values across all three sustainability

domains, and takes account of the connections and inter-relationships between these

values. Notions of amenity, place-making, social cohesion, liveability, community

values and the like, all contribute to the sustainability outcomes of infrastructure

investments and these can only be explored and analysed through deep engagement

with a range of stakeholders, including end-users, before investment decisions are

made. The following sections discuss the role of participation, benefits identification

and assessment, value assessment and trade-offs, within a sustainability appraisal

model.


7.4 PARTICIPATION

The economist and Nobel Economics Laureate, Elinor Ostrom (1933-2012),

wrote extensively on ‘governing the commons’ with an understanding that there is no

‘one size fits all’ solution to governing resources for the common good. If all

individuals involved in decision making were considered rational, they would be

characterised to know

1. All possible strategies available for a situation;

2. Which outcomes are linked to each strategy; and

3. A rank order for preference of outcomes based on individual preference

measured by utility (Ostrom, 2010).

However, Ostrom noted that rational individuals are also invested in social

dilemmas involving matters of trust and reciprocity. In order to deal with matters of

complexity involving the common good, Ostrom’s later writings acknowledged the

need for institutions that bring out the best in people and the need for participation and

cooperation by individuals affected by decisions.

Participation refers to collaborative processes of working with multiple

stakeholders, including end users, to build knowledge, to develop trust and

understanding and to manage uncertainty in decision making. Participation in

infrastructure decision making looks beyond participation models within political

systems such as voting, lobbying and protesting, and instead looks at deliberative

processes that allow the considered examination of the technical, environmental and

social aspects of a given initiative. This takes planning and analysis outside the domain

of engineers, technical specialists or economists employed by infrastructure providers,

and broadens the assessment to take account of local knowledge that may not be

formally documented. For infrastructure providers, participation activities are aligned

with a sustainability approach in the delivery of major initiatives, and address Goal 17

of the UN SDGs.

In the interviews, it was stated that ‘we understand that it is probably a greater

benefit to the business to spend money and time in engagement up front in the process-

how much is that worth in dollar terms in not stuffing up and having to go back and

change your design somewhere along the line and do works that you never planned to

do?” Other benefits of participation in decision making include:

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• Helping to define complex problems and find non-traditional pathways that

may not be apparent through top-down approaches;

• Drawing on a wider range of expertise and practical experience of those

working in the field;

• Improving the quality of assessment based on the understanding of values,

interests and concerns of participants. This may include a greater

understanding of indigenous knowledge and indigenous concepts of

‘country’;

• Creating greater legitimacy of decisions where those who are interested and

involved understand the trade-offs that need to be made, see decisions as

fair and competent and abiding with laws and regulations;

• Building the capacity of those involved in decision making in areas of

communication, technical information and mediation, as well as future

decision making;

• Building trust between participants; and

• Mobilising potential project champions, sponsors, donors and funders.

(from National Research Council, 2008; Jackson et al., 2012; Head, 2011)

However, decision making for infrastructure projects in Australia remains

expert-driven and technocratic or is captured by closed networks. This may, in part, be

due to the political nature of decisions, supported by the inflexibility of institutional

configurations to engage more widely. Whereas infrastructure providers report

publicly on a range of activities such as planning and operational activities, business

case documents remain confidential, or when released are heavily redacted to remove

aspects that may be challenged or seen to be politically sensitive.

Participation in front-end decision making need not be a new or challenging

process for infrastructure providers. Increasingly, legislation requires water authorities

to engage with communities in planning or pricing decisions. At the same time,

community expectations have grown to ensure that across industry, infrastructure

providers typically engage with the community in the construction phase of project

delivery. In addition, broader engagement activities may be employed by other areas

of government such as local government, whose activities typically address local


community priorities through mechanisms such as community indicators. Taking

account of these related engagement activities, new approaches to participation in

investment decision making for projects may also be formalised as outlined in Figure

7.1.

Figure 7.1. Aspects of current participatory processes that may influence new approaches to participation in investment decision making

As part of corporate planning and priority setting, water authorities are

encouraged to employ participation processes involving the community and customers

and provide ‘shared value’ that looks beyond core services to address social and

community values (WSAA, 2017)19. The Essential Services Commission (ESC), the

economic regulator in Victoria, now requires that price submissions from water

19 “Shared Value” is put forward by WSAA as the next generation of focus for the water industry following on from previous efforts to address public health, efficiency and water security. A shared value model puts customers and the community at the centre of decision making, and takes water businesses providing services that may go beyond the provision of water and sewerage services.

Participation in investment

decision making for

projects

Regulatory or statutory

engagement requirements

Engagement activities at a

local or regional

level

Project delivery communications

activities

174

authorities demonstrate meaningful engagement with customers and identify their

concerns, interests and priorities (Essential Services Commission, 2016). The

interviews revealed a range of engagement techniques that are employed to understand

customer priorities. No uniform technique is applied to participatory processes, but

rather the design of engagement activities should be appropriate to the goals of the

situation under review. From a regulatory viewpoint, the requirement to engage with

customers is new and untested, and currently only applies to the state of Victoria.

However, over time, the learning from this approach may potentially be transferred to

investment decision making and applied more widely across all jurisdictions.

Through the interviews, it was identified that communications teams are

typically established in water utilities to manage engagement with local communities

when projects are in construction. It was noted that the introduction of stakeholder

engagement teams is a relatively new area of practice within water utilities, as

infrastructure providers were initially established with a core technology focus. Such

practices are in accord with guidance provided by the sustainability rating tool

developed by the Infrastructure Sustainability Council of Australia (ISCA) that

rewards projects that incorporate stakeholder participation. A commonly used

approach to support communications activities is the International Association of

Public Participation (IAP2)’s public participation spectrum20 that identifies different

levels of engagement that may apply to different circumstances in project delivery as

informing, consulting, involving, collaborating or empowering public participants. For

the water industry, the shift over time to participative processes within the delivery

phase of projects provides a strong model to shift to more collaborative processes in

business case development in the future.

At local and regional levels, government and local government authorities

continue to engage with local communities on a range of issues from health initiatives

to local planning provisions. The ability of local governments to engage widely and

deeply with local communities was noted in the interviews, and those water authorities

that sit within local government structures may benefit from this relative strength. The

Gold Coast Water Futures project undertaken by Gold Coast Water (within Gold Coast

20 Details of the spectrum are available on the IAP2 website: https://www.iap2.org.au/About-Us/About-IAP2-Australasia-/Spectrum


City Council) in response to the millennial drought was cited widely as an exemplar

of community engagement in planning and priority setting. More recently, the City of

Melbourne has formed citizens’ juries to provide input into the Future Melbourne

Strategy and the development of a ten-year financial plan. The levels of trust and

goodwill required by all parties involved in these collaborative planning processes

provide a template that may be applied to investment appraisal and decision making

for infrastructure projects.

The evidence provided in both stages of this research identified an understanding

that participation involving representatives of the wider community or stakeholder

groups is critical in a sustainable framework. In practice, it was also acknowledged

that participation processes are difficult, and that some projects have not had a high

level of success in attempts to collaborate more widely with stakeholders and the

community. The research revealed two key questions that are critical to the design of

participatory processes:

• Who should participate in decision making?

• How should the process be conducted?

A collaborative approach to decision making acknowledges the limitations of

political representatives or executive staff to fully explore the issues and opportunities

available in infrastructure appraisal. Stakeholder engagement typically involves those

with more formal roles in government or representative organisations, and community

engagement refers to broader engagement with the general public. Recruitment

methodologies may vary and the selection of participants and their degree of influence

are critical issues in participatory design.

The choice of participants must be complemented by considerations of how the

participants come together and how they make decisions. The design of collaborative

processes requires the consideration of a range of factors including the nature of the

organisation that is conducting the process and the attributes of the group that is being

engaged. The collaborative design process may involve co-design of the approach with

citizens that may also address the variety of goals and expectations of the process.

Table 7.2 provides an outline of concepts and corresponding participatory instruments

or methods for participation.

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Table 7.2

Participatory design instruments (source: National Research Council, 2008)

Concept Goal Typical Instrument

Functionalist Improve quality of decision Delphi workshops, citizen

advisory committees

Neoliberal Representation of values

proportional to impact

Referendum, focus groups,

polling, negotiated rule making,

mediation

Deliberative Considerations of truth and validity Discourse orientated models,

round tables, forums, deliberative

juries

Anthropological Use of common sense in disputes Consensus, conference, citizen

juries, planning cells

Emancipatory Empowerment of less advantaged

groups

Action groups, town meetings,

tribunals

Postmodern/ reflexive Demonstration of plurality and

legitimacy

Forums, conference, panel

discussions

The choice of participatory design should address the specific objectives of the

engagement. Participation is central to a sustainability model and should be integrated

through all stages of the decision process. The role of participation will be explored in

the following sections, and particularly in activities involving the identification of

values and the consideration of trade-offs.

7.5 THE ROLE OF BENEFITS AND VALUE- A SUSTAINABILITY INVESTMENT LOGIC

7.5.1 From infrastructure business models to a sustainability investment logic

Through the interviews, it became evident that the term benefit within the CBA

paradigm denotes a range of meanings that include both benefit and value. Hence, the

benefits of CBA are most often described in terms of monetary value. In addressing

this apparent conflation of benefit and value, the following distinction may be applied

for the two terms (based on Chan et al. (2012) and Sagoff (2000)):

• Benefits result from the production of services to society (net welfare

gains)


• Value represents the relative worth of services based on human

preferences.

The distinction between benefits and value may also be illustrated within the

framework of an infrastructure business model hierarchy shown in Figure 7.2.

Figure 7.2. Infrastructure business model hierarchy (adapted from Bryson et al., 2014)

At the top of the infrastructure business model hierarchy are the impacts

associated with investments. Impacts relate to contributions of projects or initiatives

to broader goals such Gross Regional Product or pollution targets and often are the

result of the cumulative impact of a portfolio of projects and policy initiatives.

The benefits, or outcomes, relate to the economic, social and environmental

impacts, which may include increased productivity in business, enhanced personal

mobility and reductions in waste. These are measurable targets that are directly

attributable to a project and may be monitored at relevant stages of a project lifecycle.

Value relates to the outputs of the investment decision, and the tangible and intangible

value created by an investment. Value may be realised by individuals or groups

impacted by an investment. The Infrastructure Business Model is underpinned by the

inputs and activities associated with the infrastructure investment that include costing,

financing and funding infrastructure investments. These aspects will be discussed

further in the development of an overall investment model.

Impact

Outcomes (Benefits)

Outputs (Value)

Inputs and activities (Cost and Funding)

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Infrastructure investments provide both benefits and value, and these should be

captured in investment appraisal. The relationship between benefits and value is

proposed in this research through a new concept that, in this research, is termed as

Sustainability Investment Logic. Sustainability Investment Logic builds on existing

guidance for investment logic mapping (ILM) that is promoted by various

governments across Australia including Victoria (Department of Treasury and Finance

or DTF) and Queensland (Building Queensland). According to DTF guidance, ILM is

a tool to ‘tell the investment story’ whereby every investment should be able to

‘describe how it is contributing to the benefits the organisation is seeking’ (State of

Victoria, 2017). Benefits identification and management is an analysis technique that

is growing in significance across the disciplines of project and program management

with the aim of linking project activities to strategic goals. In project management

theory, benefits management moves the focus of projects from achieving efficiency in

outputs (within the time, cost, quality triangle) to effectiveness in outcomes through

addressing business objectives. ILM allows a ‘clear line of sight from strategy to

initiative’ (Jenner, 2010, p. 66). Guidance on ILM varies across jurisdictions, however,

the key principles include linking an infrastructure problem (or opportunity) with

benefits and subsequent solutions. ILM also requires that non-asset interventions, such

as policy initiatives, be assessed as part of the solution. Hence, the solution may be a

fully non-asset solution (an example being the introduction of charges and other

mechanisms to manage demand) or a mix of asset and non-asset solutions. Figure 7.3

illustrates the typical elements of an ILM.


Figure 7.3. Typical elements of ILM (adapted from review of Victorian and Queensland Government guidance)

The Sustainability Investment Logic approach proposed by this research adds

the further dimension of value to the logic map. Using the dimensions of value derived

from the results of the qualitative research phase, Figure 7.4 has been developed to

capture four ‘building blocks’ of value described in the interviews.

Benefit2

Benefits Solution

Benefit3

Benefit1 AssetSolution

Non-Assetinterventions

Driver

Objective#1

Objective#2

ProblemorOpportunity

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Figure 7.4. A Sustainability Investment Logic model

The following sections describe more fully the aspects of benefits and values within

this sustainability investment logic model.

7.5.2 Benefits

The interviews identified three key dimensions of sustainability benefits

associated with infrastructure investments. These are community benefits, customer

benefits and business benefits.

Community benefits that are attributable to a project relate to the wider benefits

that are generated beyond the boundaries of the initiating organisation. For a water

authority, community benefits may accrue through investments in integrated water

management that recognise the broader benefits that extend beyond jurisdictional

boundaries in areas such as upstream flood mitigation effects or downstream water

quality improvements. One interviewee noted that:

when the rubber hits the road to invest, no one has got a way to work around

the different boundaries and finances of different organisations, whether it’s

councils or government, because often people putting up the cash are not the

ones who necessarily benefit.

CustomerBenefits

Benefits Solution Value

BusinessBenefits

CommunityBenefits AssetSolution

Non-Assetinterventions

EconomicValue

EcologicalValue

SocialValue

DevelopmentValue

Driver

Objective#1

Objective#2



On the other hand, trans-boundary issues have the potential to have negative

impacts on surrounding areas. In large cities, ‘patchy’ approaches to infrastructure

solutions have the potential to compromise amenity, as optimal solutions for water

resource management do not necessarily fit neatly within bounded governance

arrangements (Floyd et al., 2014). In discussing the recovery efforts in post-

earthquake Christchurch, MacAskill & Guthrie (2017) described misaligned remits

across organisations that had the potential to limit efforts to fix land drainage issues.

In this case, community benefits were realised by recognising the wider context of the

problem around stormwater assets, and implementing new institutional models that

allowed greater collaboration across pre-existing boundaries.

For water authorities, customers may include all those interacting with the

organisation. This may include direct customers for services such as businesses and

residents, but also developers requiring approvals and other local service providers

(including local government, power and communications providers, water retailers,

catchment management groups and the like). In the interviews, it was stated that:

a particular person can be a different type of customer at any point of time.

They can be someone who is doing a development on their house so they go

through our development line- development services. They can also be

someone who on the weekend goes to the creek so they are a different

customer then. So at the highest level, everyone is a customer. If we want to

think about the particular services that we deliver, we might think about them

in different segments about how we interact with them.

In recognising the importance of customers, water utilities are typically required

to adopt a Customer Charter that outlines the organisation’s commitments to standards

of service delivery and the rights and responsibilities of customers. In moving beyond

compliance with regulatory requirements, some water utilities also recognise the

importance of understanding the preferences and needs of customers through working

with customer groups and through undertaking regular customer surveys. As part of

price submissions to the economic regulator in Victoria, water businesses are now

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expected to undertake a higher level of engagement with customers.21 Through

effective customer engagement, infrastructure providers may be better placed to

understand customer needs and to direct investments that deliver optimal customer

benefits.

A focus on customer benefits may also lead to business benefits. As monopoly

businesses, water entities place high importance on building legitimacy and trust with

customers. Whilst self-promotion through mechanisms such as annual reporting

contributes to customers’ understanding the role of water businesses, water business

may also adopt principled positions in areas as environmental stewardship, social

welfare or local economic development (Ogden & Clarke, 2005). In the interviews, it

was stated that:

people will respect their water corporation- they know who they are – they

have a social licence to do things in their communities as well- through their

definition of responsibilities and what they do gives them a certain amount of

kudos to go out and do certain things…

In adopting a principled position on key issues, water utilities may gain support

and trust from customers and the wider community. Yarra Valley Water’s ‘Choose

Tap’ initiative, seeks to promote the choice of tap water over bottled water and other

hydration products in seeking improved health and environmental outcomes for the

wider community. In adopting a public education role on this issue, Yarra Valley

Water can be seen as a leader and innovator in effecting societal change. This may

lead to reputational benefits for that organisation. For a water utility, the shaping of

infrastructure investments may take account of the wider societal issues that the

organisation seeks to support though its operations.

Benefits are performance measures represented by Key Performance Indicators

(KPIs) that may be developed through a logic mapping approach to explicitly link

goals to outcomes and outputs. Using this approach, goals should align with best

practice in developing indicators using SMART criteria (goals should be specific,

measurable, achievable, relevant and have a timeframe for completion). A structured

21 As noted previously, the Essential Services Commission (ESC)-economic regulator in Victoria- has introduced new requirements for pricing submissions from water businesses to demonstrate meaningful engagement with customers. Other states (with economic regulators) have no similar requirements at the time of writing.


approach to formulating target benefits should be employed through the involvement

of relevant stakeholders and the inclusion of benchmarking as part of quality assurance

(Chih & Zwikael, 2015).

As an extension of benefits assessment, benefits realisation ensures that planned

benefits are reviewed and evaluated following execution and that new benefits may be

identified in an investment cycle. Benefits realisation is compatible with notions of

sustainable development (incorporating a holistic management approach that

integrates economic, social and environmental considerations). It is recommended that

• Project benefits should be determined before the outputs are defined;

• Benefits should be determined through co-creation involving multiple,

independent stakeholders;

• Benefits co-creation requires continual alignment with project goals and

objectives; and

• A lifecycle approach to benefits management is required, whereby benefits

are continually reviewed and assessed, including at project completion

(Keeys & Huemann, 2017).

7.5.3 Value

Across Australia, government departments that are responsible for water

planning typically formulate policy documents that direct water businesses on

government priorities and aim to achieve a uniform and coordinated approach to water

management. As an example, Water for Victoria represents the key policy position of

the Victorian Government on water resource management and sets out the priorities

for water authorities in that state. For Victoria, new areas of government focus that are

outlined in Water for Victoria relate to aboriginal values of water and recreational

values. For water authorities, a key challenge is for operational activities to respond

to these new policy directions that deal with values.

This research does not seek to dispute the application of economic valuation

techniques that are used in planning studies. The interviews revealed several instances

where robust economic evaluations were successfully undertaken as part of water

business decision making. However, the interviews also revealed instances when the

assignment of value to projects using market-based methods such as hedonic pricing

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or willingness to pay (WTP) yielded results that simply could not justify projects that

were seen to have strategic value.

This research has highlighted the questions that continue to be raised on the

ability of traditional economic approaches (based on maximising utility or usefulness

from scarce resources) to align with the economics of sustainability that have different

boundaries, goals and rules. As discussed previously in Chapter 3, neo-classical

approaches to value are founded on considerations of both exchange value and utility

value, and are represented in financial accounting terms. This narrow approach

disregards the intangible dimensions that are increasingly recognised as contributing

to value. In assessing values using the measurement unit of money, only part of the

true or total value of a service can be captured. Whilst research efforts continue to

address the broadening of monetary valuations on ecosystem services, an integrated

approach to assessing the full range of economic, social and environmental factors

remains a challenge. By broadening the understanding of value to include ‘underlying

ideals’ that form the basis of intangible dimensions, decision making may better

respond to ‘hidden aspects’ of more complex problems (Chan et al., 2012). Economic

valuations in CBA fail to fully represent the systemic values of infrastructure and the

inter-relationships between those values.

Responses from the interviews highlighted the importance of fully investigating

and understanding the range of values attributable to infrastructure investments. These

include

• The assessment of value and an understanding of attribution of the gains that

have been delivered from an investment may inform who should contribute

to funding infrastructure (including where there may be a case for

government contributions through general revenue);

• A clear understanding of value may allow the trade-offs between value

dimensions to be fully transparent; and

• The articulation of value created may support the justification of preferred

solutions, particularly in dialogue with regulators and broader stakeholders.

A challenge for infrastructure provision is to achieve ‘a better balance between

quantitative and qualitative appraisal, and enable a balanced, multidimensional

assessment of value (Brown & Robertson, 2014, p.86). Recognising that infrastructure


has the potential to contribute to social, economic and environmental improvements,

four value propositions have been adopted as building blocks for infrastructure

investments. These are economic value; development value; ecological value and

social value. These categories have been integrated into the coded results from

interview responses, and hence Figure 7.5 illustrates the value creation stream that

forms part of a Sustainability Investment Logic.

Figure 7.5. Value Creation- the dimensions of value

Value assessment should avoid the simplistic, but often used, approach of

compartmentalising values into the sustainability domains, and creating a sense of

equity between each domain. Instead, the assessment of value must recognise the

linkages between value domains. As an example, indigenous values relating to hunting

and fishing in water bodies may be considered economic, social and cultural (Jackson,

2006). In the case of waste water treatment works, treated effluent may provide a range

of economic, ecological and social values, whereby resources are extracted and re-

used. In the case of the Western Treatment Plant in Victoria, the established wetlands

provide ecological value in harbouring migratory birds, economic value through

visitation by the ornithological community and eco-tourism, and social value though

education and community development activities. These and other values derived from

the facility are interlinked across the value domains.

Ecological Value

EconomicValue

Development Value

Social value

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The assessment of value should involve the participation by a range of interest

groups to ensure deliberation, negotiation and debate, providing an integrated

understanding across the value domains. Participation in the identification and

monitoring of value creation provides a level of transparency and accountability for

infrastructure providers in ensuring that the values that are identified are real and

appropriate. A participatory process also provides a forum that enables the effective

trade-off between values.

The four dimensions of value that were addressed in interviews are discussed in

more detail below.

Economic value

The Dublin Principles22 remain a key standard for water resource management,

and one of the four principles states that ‘water has an economic value in all its

competing uses and should be recognised as an economic good.’

Investments in water resource projects, such as urban and rural water supply,

irrigation, wastewater treatment, flood control or drainage management support

economic development and public welfare. Infrastructure contributes to economic

growth through direct investment stimulus, generating economic efficiency and

facilitating endogenous growth. Infrastructure contributes to regional competitiveness,

job creation and productivity gains. Externalities refer to the impacts of projects on

wider economic activity. Also referred to as Wider Economic Benefits (WEBs), there

remains some debate as to whether these WEBs may be included in standard CBA.

For example, any submissions to Infrastructure Australia (specifically relating to

projects of national interest) must firstly provide CBAs without WEBs, and then with

WEBs, as a sensitivity test (Infrastructure Australia, 2009). WEB analysis may include

production functions, business impacts and labour impacts. Water services are

associated with public value externalities that may include (from Solanes & Gonzalez-

Villarreal, 1999)

• the impacts on economic activity;

22 The Dublin Principles are based on the Dublin Statement on Water and Sustainable Development of 1992 when water experts met at the International Conference on Water and the Environment to discuss water issues including water scarcity and water-based conflict.


• the impacts on environmental systems;

• the impacts on aquatic life and resources;

• the impacts on public recreation and access;

• the effects on public health;

• the risk of harm to the public or service providers;

• the impacts on water conservation; and

• other relevant local matters.

Integrated water cycle management (IWCM) initiatives, also referred to as

green infrastructure, present the opportunity to create multiple values that include

climate change mitigation, flooding and water quality improvements, thermal comfort

and reduced energy use. In a submission to the Australian Senate’s Stormwater

Inquiry, the Australia Academy of Technological Sciences and Engineering (ATSE)

called for economic evaluation models to be broadened to assess the true value of

investments made into green infrastructure (ATSCE, 2015). The difficulties in

articulating the full range of values associated with alternative infrastructure delivery

models were confirmed in the interviews. Specific issues raised in relation to

limitations in modelling economic values included

• The base data (such as demographics) used in economic analysis is critical,

requiring cross-checking and validation. Often, the available sources of data

(such as government census data) are obsolete and not ‘fit for purpose’;

• The assumptions that underpin any economic analysis are critical, and are

based on the knowledge and expertise of the analyst. Often there is no ability

for wider input into the formulation of assumptions. These assumptions

would benefit from being rigorously interrogated and debated; and

• Economic value calculations typically yield higher impacts in areas of

higher population density, hence there are issues of equity if modelled

economic value alone is the determinant of infrastructure investment.

Development value

Through the centuries, infrastructure has played a key role in facilitating urban

development and shaping the urban domain. Melbourne’s Maroondah Reservoir

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provides one example of how the Melbourne and Metropolitan Board of Works

(MMBW) provided not only a functional water storage to supply the city of Melbourne

in the 1920s and beyond, but a dam wall and walkway with decorative balustrading,

an outlet tower with classical design elements. The parkland surrounds, with waterfall

features, comprised the first public landscape that was incorporated into a reservoir

design in the state of Victoria (Andrews, 2015). This exercise in monument building

was a public relations success, and the dam surrounds are part of the tourism mix for

visitors to the nearby township of Healesville. To the west of Melbourne, the Western

Treatment Plant was initiated for the primary purpose of treating effluent and

improving discharges to Port Phillip Bay. Now, recycled water from the treatment

plant is used for irrigation, supporting vegetable production on agricultural land

development within the Werribee Irrigation District. The Western Treatment Plant site

is also a declared Ramsar site and regarded as a prime area for birdwatching, hosting

visitors from across the world to witness a range of waterbirds, as well as threatened

and vagrant species23.

Development value represents the impacts to property value or ‘uplift’ resulting

from infrastructure investments. Mechanisms such as value capture may provide

guidance in identifying directs and indirect revenue streams through such uplift. Value

capture has been adopted by governments across Australia through policies and

planning activities, based on an understanding of the wider value that infrastructure

provides to the urban environment. The Australian Government’s Smart Cities Plan24

refers to value capture as ‘the development and sale of land above or adjacent to

transport interchanges or government owned land’. Furthermore, value capture ‘uses

a share of this increased value to help finance the infrastructure responsible for the

uplift’ (Commonwealth of Australia, 2016b). Governments are now looking at value

23 A history of the site can be found on the Melbourne Water website, together with a link to further details on bird watching activities: https://www.melbournewater.com.au/aboutus/historyandheritage/historyofsewerage/pages/history-of-the-western-treatment-plant.aspx 24 Released in 2016, the Smart Cities Plan is the federal-level policy for metropolitan and regional cities, residing in the Department of Prime Minister and Cabinet. The plan can be accessed at https://cities.dpmc.gov.au/smart-cities-plan


capture as a potential revenue stream for infrastructure projects to offset the funding

required from general government revenue.

The commercial nature of water businesses requires that pricing mechanisms be

established and that these form the basis for funding new infrastructure investments

(subject to regulatory reviews). For water businesses, development value may be

realised through new infrastructure generating new customers and income streams, or

through realising the value of land and assets.

The interviews highlighted the need for caution in embracing the financial

opportunities that value capture may provide. Some water utilities traditionally own

large land parcels set aside for future activities to service growing population bases.

With urban encroachment, these properties typically increase in value and have the

potential for wealth-creating, private development. The opportunity to raise revenue

through asset sales is a tempting prospect for infrastructure agencies. However, before

contemplating land or asset sales, utilities need to better understand the potential of

these assets from both a business perspective and a whole-of-government perspective,

and this may be done through long-term planning activities for asset portfolios.

Ecological Value

The understanding of value in relation to ecological systems provides a starting

point for organisations to develop policies and responses to the UN Sustainable

Development Goals. Yarra Valley Water has developed an Integrated Profit and Loss

(IPL) report to measure both the impacts of its operations and value created across the

four capitals: natural, social, human, financial25. The City of Melbourne has estimated

the worth of its trees as $650 million, thus informing efforts to manage its urban forest

in response to climate change and general decline through ageing. The City of

Melbourne26 states that the benefits of an urban forest

• Provide shade and cool our cities;

25 Yarra Valley Water’s first Integrated Profit and Loss Statement was released in 2016. The report states that the water business provides $72.4 billion of benefits for the environment, its employees and society in 2014/15. Details are on the YVW website: https://www.yvw.com.au/about-us/news-room/yarra-valley-water-provides-au724-million-benefits-environment-and-society 26 From the City of Melbourne website: http://www.melbourne.vic.gov.au/SiteCollectionDocuments/urban-forest-strategy.pdf

190

• Reduce stormwater flows and nutrient loads;

• Reduce air pollution, air-borne particulates and greenhouse gas emissions;

and

• Provide habitat and enhance levels of biodiversity (City of Melbourne,

2012).

As noted earlier, Total Economic Value (TEV) is used to describe the broad

categories of ‘ecosystem services’ associated with water resources that, according to

the OECD (2006), may include:

• Provisioning services- including products obtained such as food and crops;

• Regulating services- improvements such as air quality from the regulation

of ecosystem processes;

• Cultural services-including spiritual enrichment, cognitive development or

recreational use; and

• Supporting services necessary for the production of all other ecosystem

services.

The interviews revealed that elements of ecological value or impact could be

derived through modelling and analysis. Previous government policy that set a pricing

mechanism for carbon, and subsequent policies that establish greenhouse gas emission

reduction targets, have also provided a basis to quantify and evaluate opportunities to

reduce greenhouse gas emissions. Similarly, the costs of other air pollutants can be

modelled and assessed. In addressing water quality impacts, pricing mechanisms

already exist, whereby any new development is subject to offset charges based on

modelling of nitrogen load into local water bodies. These charges are derived through

knowledge of the treatment costs associated with pollutants.

The interviews also revealed issues of scalability in extrapolating broad regional

level analysis to a local, project level. Various studies have assigned values to

environmental assets, including the Great Barrier Reef (with estimated economic,

social and icon asset value of $56 billion) and the City of Melbourne’s urban forest/

council tree cover (with estimated amenity value of $650 million). Using the example

of trees, one interviewee considered that the translation of overall tree values for the

City of Melbourne to a local scale appeared to allow investment in urban improvement


works that would be difficult to justify for a regulated water provider. On the other

hand, broader values (such as unwritten heritage significance or location-specific

amenity values) emerge at a local level when a project requires the removal of trees.

The application of marginal values, derived from broader studies, is difficult to transfer

in the absence of local, site-specific knowledge and analysis.

The literature review identified key methodologies used in economic appraisal

associated with ecosystem services as below. This list provided below in Table 7.3 is

not exhaustive27, but represents common methods in ecosystem evaluation.

Table 7.3

Common valuation techniques

Valuation Technique Description

Hedonic Pricing Use of marketed value of goods to measure the implicit price of non-

market good

Travel Cost Use of travel surveys based on observed travel and time expenditure

Productive Function Assessing the productive value of ecosystems

Replacement Cost Using the cost of a man-made substitute of an environmental asset

Benefit Transfer Use of values associated with previous studies to assign value to new

case

Contingent Valuation

Method

Use of surveys to determine what people are Willing to Pay, or Accept

for a given good or service

Choice Modelling Method Use of surveys where respondents choose a preferred option from a

range of alternatives

Life Satisfaction Analysis Use of surveys on life satisfaction as an econometric measure of

environmental conditions

27 Guidance also promotes further methods such as proxy valuing and defensive expenditure.

192

Of these techniques, the use of Willingness to Pay (WTP) studies was discussed

by several interviewees as an analysis tool in both project specific work, and in overall

price submissions to the regulator. WTP studies are useful in building the value profile

of an infrastructure investment, however the interviews revealed that

• A WTP study alone does not represent the full value of ecological values

associated with infrastructure investments; and

• WTP studies are useful in gauging acceptability of a proposal but the

quantum figure derived does not necessarily represent what people would

actually pay for a service. In this case, it was stated that there needed to be

a form of “reality check” applied to the outcomes of WTP studies associated

with ecosystem services.

Hedonic pricing methods are also commonly used to assess value creation

associated with infrastructure investments. The term is attributed to the 1939 work of

Andrew Court, who used the term in applying statistical techniques to economics. The

hedonic pricing method seeks to estimate the value of non-market goods through

observations on the real choices made in actual markets. In practical application,

hedonic pricing is largely used to derive a value associated with marginal increases in

property valuations realised through proximity to an environmental asset, such as a

waterway or park. Critiques of hedonic pricing methods suggest that property pricing

may be influenced by a range of factors such as structural attributes, locational

attributes, neighbourhood attributes and environmental attributes, whereby attribution

and causality is difficult to ascribe.

A growing body of work is focused on collating and managing values derived

from detailed studies to establish and maintain databases of ecosystem values. Benefits

transfer is used when budgets or timeframes do not warrant value analysis that is

specific to the problem at hand. Techniques for value transfer may include meta-

regression of existing studies, development of a transfer function or more simplistic

point value transfers, whereby point transfers are most commonly used (Mekala, et al.,

2015). One interviewee noted,

But it isn't always easy to find the off the shelf study… are you ever going to

be able to get to a position where you can pick a simple off-the-shelf number


or do you have to accept that that you might want to proceed from the other

way up?

A range of tools are available that provide quantitative and qualitative

assessment of values attributable to ecosystem services. These tools provide ‘a

promising way to communicate resource management trade-offs’ in development or

extractive resource use (Bagstad et al., 2013, p. e35). However, the development of

place-specific tools (applicable at a project level), have long lead times and require

specialist resources from consultants and/or universities. Even so, the values that are

derived for a given ecosystem assessment may vary depending on the position of the

analyst, prompting calls for valuation studies to adopt a ‘value pluralism’ approach

rather than the use of a singular unit value, which may more effectively inform

decisions in the urban domain (Gómez-Baggethun & Barton, 2013).

Social Value

The interviews revealed that, in the social domain, considerations of the positive

health impacts associated with water initiatives are reasonably well documented.

Examples of health impacts include air quality, water quality and health improvements

associated with green spaces that are enabled by water investments. Amenity value is

seen by some to be directly attributable to property valuations gauged through hedonic

pricing studies. (This view is also challenged with questions arising from the use of

house pricing increases as a measure of amenity, when at the same time housing

affordability is also raised as a growing societal issue to be addressed).

Other social dimensions are less clear to define, in terms of value. Of note, the

current area of focus on linking water initiatives to liveability value is more difficult

to assess. Just as understandings and framings of sustainability vary, concepts of

liveability may also vary, according to what is important to any single individual or

community. Hence, the first step in assessing the value of liveability is to develop an

understanding of what liveability means to any identified group. As an example, for

some communities, liveability may mean having access to parks with shade cover, and

for others, liveability may be about addressing bill affordability. In some areas,

Community Indicators have been developed to provide greater insight into the

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priorities and wellbeing of local communities.28 Local priorities may be best

understood through referencing community indicators, and through consultation with

local community groups.

Australia’s National Water Initiative places indigenous rights, values and

interests as a national priority that requires greater attention. Water for Victoria and,

corresponding policies in other jurisdictions, have requirements to incorporate

aboriginal values in decision making. Several water utilities have also developed

Reconciliation Action Plans (RAPs) that recognise Aboriginal and Torres Strait

Islander connections to land and water, however the challenge in this case is to develop

project level benefits that respond to the aspiration of RAPs and government policy.

This matter is seen as any area of greater complexity and uncertainty. Those

interviewed had no clear view on how cultural values would be addressed in project

appraisal, although it was noted that the concept of ‘cultural flows’ is emerging and

that these are additional to more widely understood, environmental flows in

waterways. In Australia, cultural heritage practice has traditionally considered value

in terms of elements or objects (Jackson, 2006). Cultural values have no common unit

of measurement and multi-dimensional aspects include spiritual, aesthetic, social,

historic, symbolic and authenticity value (Throsby, 2001). Values and perspectives of

water in indigenous cultures include

• Water is a living being and water bodies have specific powers;

• Water is a life source;

• Land and water are an integrated whole;

• Physical and spiritual well-being of humans is connected with water and

land; and

• Water forms part of identity (from Jimenez (2014).

Interviewees stated that there was much to learn from New Zealand, where an

understanding of cultural values has informed the design outcomes for waste water

treatment facilities. In developing technological solutions for wastewater treatment

28 In the state of Victoria, Community Indicators Victoria (CIV) has developed Wellbeing Indicators to guide evidence-based planning around the health and wellbeing of communities. Further details are available on the CIV website: http://www.communityindicators.net.au


processes, Maori/ tangata whenua cultural views regarding human waste have

informed decision making. In this case, rock-lined channels or other forms of land

contact (Papatuanuku or earth mother) are used to spiritually cleanse human waste

prior to disposal in receiving waters. In addition, design and operational solutions seek

to ensure that the transportation of sludge does not pass Maori meeting houses,

cemeteries and sacred land (Bradley, 2013).

In discussing indigenous water values in Australia, Jackson et al. (2012) stated

that indigenous people have a variety of interests, and different groups do not

necessarily have the same priorities. On this basis, the need to understand indigenous

knowledge and to address diverse interests may best be approached through a high

level of engagement with indigenous people at all stages of the water planning cycle.

A sustainability approach incorporates a multi-dimensional and integrated assessment

of all relevant factors including cultural and intrinsic beliefs. It is argued that it would

be meaningless to derive quantified singular values to represent fully cultural values

associated with infrastructure investments.

According to the economist, Frank Knight (1947), ‘values are established or

validated and recognized through discussion, an activity which is at once social,

intellectual, and creative’.

7.6 A NEW MODEL FOR DECISION MAKING

The literature review provided a starting point for the development of a

conceptual model taking into account that real world practice sets a variety of rules

around the methodology for analysis. At the same time, questions continue to be raised

more broadly on methodology, and how this may align with sustainability practice. It

is not possible to develop a model without reference to the often mandated requirement

to apply CBA. Now embedded in public discourse on major project proposals, CBA

is widely understood as a pass/fail test for proposals. However, in sustainability

practice, CBA cannot fully represent the wider values that may be delivered by

infrastructure investments. According to Infrastructure Victoria (2016),

CBA is not new and it is not perfect. It does not capture all impacts of an

investment. However, we think improving and extending the use of CBA will

help government make more informed investment decisions and spend more

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wisely… we recognise that it will not be possible to put a ‘dollar value’ on all

the economic, social and environmental impacts for all investment decisions.

This statement highlights the issue that the CBA methodology, with origins in the

nineteenth century, is sub-optimal, but also continues to be supported in investment

appraisal. The research has also confirmed that there is no common approach when

applying CBA, and that various techniques are employed to broaden analysis to

legitimately capture the wider sustainability values that projects provide.

For this research, two main options appeared to provide a way forward. These

were

1. Taking account of both the strengths and weaknesses of CBA, a new

approach could adapt and improve CBA practice to better align with

sustainability practice; or

2. Taking account of key aspects of current practice that contribute to

sustainability outcomes, a new, alternative approach to practice could be

hypothesised.

The second option has been pursued. However, in doing so, it is necessary to

first address the first consideration of ‘doing CBA better’. In following the second

option (a new approach) it is not the intention of this research to replicate the

methodologies that have been described by interviewees, but rather to construct a

model based on the attributes that have been identified to successfully incorporate

sustainability in decision making. The results from this research have been integrated

with emerging literature that calls for the development of new business models that

take account of the multiple values that infrastructure provides.

7.6.1 CBA- an extended approach?

Initially, the research focused on how CBA may more effectively integrate

sustainability appraisal. An understanding that CBA is prescribed in guidance material

and often mandated as part of business-case submissions in the public sector

influenced this approach. Hence, the initial consideration was focused on how CBA

could be improved, better developed or interpreted in order to meet the test of

rationality that is applied in a public sector review process. An initial model,

incorporating CBA, was developed from the literature review, forming the basis of the

research design.


This practical response took account of the shortcomings of CBA, particularly

in a sustainability context, but acknowledged that there continue to be substantial

efforts being directed to the improvement of CBA practice with a focus on broader

quantification of benefits, largely in the environmental and social domains. This

position is based on notions of formal rationality and an understanding that alignment

with market mechanisms may best describe the value created by infrastructure

investments. Taking account of the multiple values of public infrastructure, the

question arises as to whether the use of a market mechanism approach may fully

represent complex systems and achieve strong sustainability outcomes.

The interviews conducted as part of this research provided a range of

perspectives and approaches to investment decision-making for sustainability. In terms

of the use and application of CBA, four broad positions were put forward. These were

• CBA (or Advanced CBA) is a sound, rational approach for investment

decision-making where the outcomes of analysis should inform whether or

not a project proceeds (‘I'm still on the side of cost benefit analysis broadly

applied…I guess I’m a rationalist in that way’);

• CBA is a process underpinning a broader investment story and needs to

incorporate qualitative analysis with discussion of the ‘intangibles’ or

qualitative aspects (‘CBA is like a framework for evaluation. Whenever you

do evaluation, the more information that you can put into it the better’);

• CBA can be manipulated to achieve a desired outcome (‘At the end of the

day, these are subjective judgements by and large, and you are applying

numerals to them. And often I disagree with that… There are bright people

who are into the power thing and understand how to manipulate the process

to get the outcome they want’); and

• CBA is not applicable to sustainability assessment (‘when they think they

think about sustainability and use that lens to look at their projects, they will

use the Triple Bottom Line approach and multi-criteria analysis’).

Some interviews reflected the sentiments of Martin Wachs, who stated:

‘The most effective planner is sometimes the one who can cloak advocacy in

the guise of scientific or technical rationality...we adjust data and assumptions

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until we can say that the data clearly show the preferred option is best’ (Wachs,

1989, p. 477).

Taking account of the limitations of conventional CBA, ‘Advanced CBA’ was

strongly endorsed by some of those interviewed. The choice of approach appears to

be, in part, driven by expectations of the audience for the analysis. The preference for

CBA or Advanced CBA responds to an audience that it is seeking projects that are

‘BCR-positive’. In order to build a case around a preferred project solution, the analyst

is required to monetise positive impacts more fully, so as to capture as much value (or

benefit) as possible and exceed the cost side of the BCR equation. On the other hand,

the analyst of a project solution who represents value in both quantitative and

qualitative terms, is more likely to be telling the ‘story’ around justifying an

investment. The audience for this approach is likely to accept that value has broader

meaning and this includes aspects of strategic value and linkages with broader policy

and strategy imperatives.

Advanced CBA, featuring a broader array of valuations as well as a capability

to model scenarios and potentially work through options with community

stakeholders, offers substantial improvement on more conventional practice in CBA.

In addition, the principles of Advanced CBA appear to generally satisfy regulatory

review processes.

The interviews revealed the limitations of CBA/ Advanced CBA, including:

• The ability to model ‘benefits’ is often limited to items that can be easily

measured. As an example, a proxy for ‘social’ dimensions may be health

impacts measured by impacts of air pollution;

• The ability to value cultural artefacts, natural and cultural systems (such as

waterways) or impacts is questioned;

• Social dimensions such as ‘liveability’ or amenity are subjective, even

within communities or localities. The use of economic instruments, such as

Willingness to Pay and Hedonic pricing studies, can be useful but do not

necessarily provide a true representation of ‘value’;

• The use of ‘benefits transfer’ provides an alternative to undertaking detailed

and costly studies to provide valuations of ecosystem services, however


there are difficulties in transferring values applicable to one geographical

location, to another;

• The monetised values associated with new responses to infrastructure

problems such as alternative water projects or IWCM projects may not be

widely understood and often means that these forms of projects do not ‘stack

up’;

• Where projects are contained within a limited geographical area, but address

problems beyond those boundaries, CBA may also not support investment.

To solve this problem, analysis may require an approach that considers

wider benefits to communities, or programme level responses, however

these approaches can be challenged in regulatory reviews; and

• Many of the assumptions underpinning any form of CBA are subjective, and

this is not widely understood or communicated when results are presented

in the form of a definitive, point value, Benefit Cost Ratio.

The news media is now well versed in reporting on major project proposals that

are proposed by local or state governments. In mid-2017, the national press reported

on the business case developed by the Queensland State Government for the proposed

Cross River Rail project in Brisbane, providing new rail services to a city that

continues to grow in population (reported in the Courier Mail by Marszalek, 2017).

The Queensland Government’s analysis derived Benefit Cost Ratio of 1.21

(purportedly updated to 1.4 in November 2016), thus passing the threshold whereby

benefits exceed costs. However, Infrastructure Australia (IA), the national body

reviewing the submission, rejected the analysis, stating:

Infrastructure Australia has not included the current proposal for Cross River

Rail as a Project on the Infrastructure Priority List at this time. Infrastructure

Australia considers that the benefits of the proposed project, as set out in the

business case, are significantly overstated, and that the costs of the project as

currently presented are likely to exceed its benefits. (Infrastructure Australia,

2017, p.1)

In response, the Queensland Government claimed that the IA review was flawed,

noting incorrect references to place names as one example of the problems with the

review (Marszalek, 2017). Without fully analysing the merits or otherwise of both the

200

submission and IA response, the arguments put forward in the media on both sides of

what appears to be a political debate illuminate the issues around the subjectivity that

is applied to CBA. And yet, CBA is considered to be a rational approach to analysis.

Over time, various alternative approaches to investment analysis have been

proposed to address the limitations of CBA. Of these, multi-criteria analysis (MCA) is

most often used, and the results of this research confirm that many organisations

continue to use MCA for decision making. Equally, many experts are highly critical

of MCA for a perceived lack of transparency or rigour, and so a uniform view on what

constitutes optimal practice for using MCA remains elusive.

The results of the research also show that the use of CBA in decision making

can vary in that, for some, the results of CBA provide a decision rule as to whether or

not a project proceeds, but for others, CBA forms part of wider analysis that informs

decision making. This observation aligns with findings from international studies.

Considerations of investment appraisal cannot be limited to methodology alone.

Often, the responsibility for analysis is given to technical practitioners (engineers,

economists or project managers), whose training and expertise often lies in following

rigid rules and/or developing mathematical models. This research has shown that there

are broader factors involved in the investment decision making processes beyond rules

and models. The previous discussions on participation, benefits and value, require the

analysis to move beyond the technical domain to a wider analysis domain involving a

range of disciplines. The research also shows that analysis is influenced by governance

and institutional factors, leadership, and the capability of practitioners. In order to

bring all these factors together, this research suggests that a new approach is needed.

7.6.2 A new model

At this point, it is appropriate to refer to the theoretical framework for this

research, with considerations of both rationality and complexity. Fully rational choice

in economics assumes an act of optimisation for maximum utility to individuals. But

laboratory studies show that humans do not always act out of self-interest. As an

alternative, the political scientist Herbert Simon proposed a model of bounded

rationality, taking account of human limitations in cognitive ability and the structure

of environments. Simon stated,


we are under no illusion that we can find a single formula, or even a

moderately complex one. We are committed to a strategy of successive

approximations, and when we find discrepancies between theory and data, our

first impulse is to patch rather than rebuild from the foundations (Simon, 1979,

p. 510).

A bounded rationality approach provides a means to move forward in developing

a model that recognises human preferences for goal orientation, incorporates

adaptability, deals with uncertainty and recognises the need to make trade-offs (Jones,

2003). Bounded rationality provides permission to look beyond the current approach

of ‘point value’ assessments to a broader approach that incorporates both quantitative

and qualitative analysis.

Figure 7.6 brings together the concepts that emerged through a staged process of

coding of transcripts from interviews with expert practitioners. Building on the

Sustainability Investment Logic that was previously discussed, key aspects of the

model are

• The incorporation of a participation approach through all stages of analysis;

• Enabling factors (governance, leadership and capability);

• Sustainability Investment Logic;

• An inputs stream (cost and funding, risk, delivery capability and asset

management systems);

• Negotiation and trade-offs;

• Decision making; and

• Implementation, review and monitoring.

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Figure 7.6. A model for Incorporating Sustainability in Investment Decision Making

The additional components of the model are discussed in the following sections.

SustainabilityInvestmentLogic

Enablingfactors

BenefitsStream ValueCreationStream

SustainabilityCommitment

ParticipationFramework

BusinessBenefit

CustomerBenefit

CommunityBenefit

EconomicValue

DevelopmentValue

SocialValue

EcologicalValue

RegulationandGovernance

OrganisationLeadership

Capabilityandskills

NegotiationandTradeOffs

Decision

Implementation,ReviewandReporting

InputStream

CostModel

RiskAssessment

AssetManagementcapability

Deliverycapability


7.6.3 Enablers

The interviews revealed themes that are deemed to have a strong influence on

the outcomes of decision making in a sustainability context. These have been classified

as ‘Enablers’, as depicted previously in Figure 6.8. Whilst participation by a broader

array of actors was also highlighted as an enabler, the significance of the role of

participation throughout the decision-making process has resulted in a separate

examination of that topic.

Governance

Governance refers to the process of a mode of government coordination and

decision making to solve problems of collective action involving the community at all

levels (Howlett & Ramesh, 2014; McKay, 2007). ‘Good’ governance is linked to the

need for transparency and accountability in decision making, in accordance with clear

rules and processes. Models of governance have shifted from a ‘state-centric’ approach

to a ‘society-centric (new governance) approach and this was reflected in interviews

whereby water businesses seek to be ‘customer focused’. A customer-centred

approach aligns with sustainability. In governing for sustainable development, three

interdependent dimensions of collective action are proposed as:

• Polity- the institutions and norms;

• Politics- the actors and resources; and

• Policy- policy objectives and instruments (from Lange et al., 2013).

These dimensions provide a framework for governance and are addressed in further

detail below.

Polity

In Australia, water sector governance remains in the domain of the public sector,

with commercialised operations in place. As each jurisdiction has separate Acts of

parliament relating to water, there are various types of legal forms of water business,

each requiring different formal and informal reporting requirements. Legislation

typically includes provisions for sustainability, but coverage of sustainability varies

between legislation within states and between states (McKay, 2007). The evidence

provided through the interviews in this research confirmed that, at an operational level,

commitments to sustainability vary between organisations in both formalised

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institutions and more informal organisational ‘culture’. However, with the Australia

government’s commitment to the implementation of the UN SDGs, there is now an

opportunity for infrastructure agencies to refresh commitments and approaches to

sustainability. This may be done through:

• Institutional design that breaks down formal barriers between divisions and

work groups with provision for multi-level coordination;

• The articulation of a clear vision supported by publication of formal

statements and commitments to sustainability and outlining long term, pro-

active goals on how commitments may be achieved; and

• Monitoring progress towards goals and regular reporting on progress,

together with circles of learning and adaption.

Regulation, whether economic, environmental or health, provides an important

role in the governance framework for water. For the water industry, economic

regulation provides a higher level of accountability in areas such as price-setting. In

discussing the positives and negatives of regulation, Samset (2008, p.181) stated.

‘Regulations can be either prescriptive and provide rules to be followed, or

proscriptive, specifying what is not allowed’. One interviewee noted that ‘policy is out

of step with the regulatory’. The economic regulatory process seeks to serve the public

interest, taking into account that water businesses are monopolies and provides the

advantage of cost certainty. However, economic regulation is typically focused on

price efficiency and short-term planning horizons. This can present an obstacle to those

seeking to initiate new approaches to sustainable water management where benefits

may accrue over longer time spans. Questions also emerge as to whether a focus on

efficiency alone fully serves the public interest.

With state-based regulation across Australia, different jurisdictions have

different approaches to regulation. In addition, different regulatory regimes within one

jurisdiction may act at cross purposes in terms of economic and environmental

outcomes. The Water Service Association of Australia (WSAA) issued a position

statement on improving economic regulation in Australia in 2014, noting the

shortcomings of current regulatory practices, and included a priority for reform of the

regulatory process to ‘better understand customer needs and what drives customer

value’ (Water Services Association of Australia, 2014). In contrast, the economic


regulator for the water sector in England and Wales (Ofwat) has duties that include

‘contributing to the achievement of sustainable development’ and requires water

companies to develop price submissions that are based on customer priorities (Frontier

Economics, 2014). More recently, in the state of Victoria, the Essential Services

Commission (ESC), as the economic regulator, has introduced a new water pricing

approach that seeks to provide better customer value through requirements to engage

with stakeholders, however these requirements are yet to be tested.

The need for regulation in the water industry is not disputed, however the

regulatory approach across Australia is disjointed and WSAA, the peak water industry

association, has called for reform. The customer-based approach to regulation that has

been introduced in Victoria represents an initial step in regulatory processes

acknowledging broader community values in decision making. If realised in actual

practice, regulatory review processes may better support a sustainability model.

Politics: actors and resources Project decisions may also be made outside of the regulatory process and

rigorous evaluation processes. In the interviews, it was noted that the role of the

political arm of government in project-level decision making has expanded in recent

years. This was witnessed by the Victorian Desalination Plant (completed in 2012) and

the North-South pipeline in Victoria (completed in 2010), which were initiated at the

political level in response to a period of drought and low dam levels. Crawford & Helm

(2009) noted that

Politics are a significant factor in the operating environment of the

government sector, which is subject to ministerial appointment processes with

a resulting impact in the form of changes in government and political

direction. Ministers act as highly influential and often unpredictable

stakeholders and sponsors to whom it is necessary to respond as a priority.

This requires the flexibility as well as a degree of redundancy to be able to

provide instant turnaround in response to requests.

Across Australia, decision making in the water sector involves an array of actors that

includes members of statutory boards that are appointed by government to provide

oversight to water authorities, and local government councillors with responsibilities

for water providers that reside within the local government sector. The need for greater

understanding of sustainability at the political level, including by members of water

206

boards and councillors, is critical to the decision-making process. This requires

educating all participants within the governance process on sustainability issues and

opportunities.

Policy

For the water industry, policy sits within a framework of legislation and

directives (such as Statements of Obligations) from government, and leads to

subsequent requirements for water utilities and other water agencies to develop water

strategies and plans. Water for Victoria, issued by the Department of Environment,

Water, Land and Planning (DEWLP) in 2016, addresses key issues for the state of

Victoria around managing for climate change and population growth, as well as

emerging priorities around Aboriginal values of water and recreational values of water.

In addition, Water for Victoria includes requirements for water utilities to address a

key government concern around domestic violence. Figure 7.7 has been developed to

show the relationships between legislation, directives, policy and the requirement for

water utilities to develop urban water strategies.

Figure 7.7. The role of policy in urban water management in the state of Victoria

LegislationStatement of Obligations

Policy

Urban Water Strategies

• Water Act 1989• Water Industry Act 1994• Other (Health, Environment, Regulation)

• Issued by the Minister outlining the obligations of Victoria's water corporations in relation to the performance of their functions and the exercise of their powers.

• Water for Victoria (developed by DEWLP)

• Water utilities to develop plans for securing water supplies over the following 50 years given uncertainty with population growth, climate change and climate variability.


In the state of Victoria, the role of policy reinforces the government’s vision to

‘manage water to support a healthy environment, a prosperous economy and thriving

communities now and into the future’ (Victoria State Government, 2016). Policy

documents such as Water for Victoria frame goal setting and work priorities across

government departments, and across jurisdictions, and play a key role in ensuring that

policy objectives relating to sustainable outcomes are understood and shared.

For service providers, projects are the vehicle for the realisation of higher level

policy and strategy. Figure 7.8 shows the linkages from policy through to projects

within organisations.

Figure 7.8. Strategic and Policy context of Projects (adapted from Young & Grant (2015))

WholeofGovernment

Strategicgoals

Agencies Agencies Agencies

Strategy StrategyStrategy

Projectoutputsandoutcomes

Policyissue

Projects

Affects

Feedback

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Despite the theoretical link between policy and strategy, studies across state

jurisdictions in Australia show that projects do not necessarily contribute to stated

corporate goals, strategies and policies. In this research, it was found that the

sustainability goals of water utilities do not necessarily translate to project level

decision making. The alignment of project outcomes with stated policy positions

requires concerted efforts to provide the right environment, characterised by adopting

collaborative processes and the presence of central government oversight in

contributing to policy alignment.

Leadership

Anyone who takes responsibility for understanding and acting upon complex

sustainability challenges qualifies as a ‘sustainability leader’ whether or not

they hold formal leadership position or acknowledged political and socio-

economic influence (Ferdig, 2007, p. 32).

Leadership encompasses sharing a vision, building consensus among disparate

groups, guiding and directing, and encouraging change aligned with new goals. The

interviews revealed sustainability leadership is provided from various levels,

including:

• Government, or representative Boards, that set strategic directions for water

entities;

• Senior executive officers responsible for strategy development and

execution in the organisation;

• Individuals (at any level) with commitment and passion within water

corporations;

• Other levels of government such as local government;

• Consultants and other collaborators working with water organisations; and

• Community leadership through formal roles such as advisory committees,

or informal roles (such as lobbying).

The challenge is to for those in formal positions of power to allow sustainability

leaders to emerge and be supported, and for leaders themselves to acknowledge their

position and collaborate widely to co-create sustainability responses.


A further enabling feature for sustainability that emerged from this study is the

role of some organisations in providing leadership across the water industry. Corporate

sustainability leadership may be characterised by:

• An organisation that actively pursues strategies to deliver societal needs as

an integral part of its operations (and where these are not ‘tacked on’ to

existing operations);

• An organisation that embraces innovation and new approaches to addressing

challenges;

• An organisation that actively develops relationships with stakeholders and

communities to effect change; and

• An organisation that celebrates its successes and shares information across

the industry sector.

Capability

Capability refers to the skill sets of practitioners developing business cases. In

infrastructure agencies, business case development is typically managed by staff with

training in engineering, project management, planning or the like, supported by

specialist analysis provided by consultants. One interviewee stated:

Management systems are not enough. This requires social insight, negotiating

skills, broad environmental knowledge and other knowledge- knowledge of

social options other than infrastructure.

The interviews revealed key competencies required for business case

development that is focused on sustainable outcomes. These include: critical thinking

and the ability to identify the wider context of problems; the ability to lead and direct

a multi-disciplinary team or work with multiple agencies; negotiation capabilities; and

the ability and drive to develop complex concepts through to implementation. Further

characteristics identified in other studies include: systems understanding, emotional

intelligence, values orientation, compelling vision, inclusive style, innovative

approach and a long term perspective (Visser & Courtice, 2011). These competencies

are not typically learnt through tertiary studies, and it may be argued that technical

training alone does not provide the skills to deal non-routine problems and subjective

analysis. In addressing sustainability in business case development, new approaches

are needed to incorporate concepts of integrated assessment, participative processes

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and dealing with values and trade-offs. Table 7.4 illustrates the shift that is required to

move from a technocratic approach to a sustainability approach in investment

appraisal.

Table 7.4

Capability shift for sustainability (adapted from Kemp and Martens (2007))

Traditional scientific approach to

investment appraisal

A sustainability approach to

investment appraisal

Academic Academic and social

Mono-disciplinary Trans and inter-disciplinary

Technocratic Participative

Certain Uncertain

Predictive Exploratory

In discussing the tendency for ‘optimism bias’ and ‘strategic misrepresentation

in the appraisal of infrastructure projects, Flyvbjerg (2013) promoted the need for

greater quality control and due diligence to be applied to practitioners in business case

development. In Australia, the discipline of business case development has no specific

training or qualification requirements. Hence, practitioners in business case

development may emerge from a variety of disciplines (such as engineering, business

studies, project management, or economics), and may have previously had no prior

experience or training in business case development. This also applies to the

consultants that are engaged to provide support to investment appraisal. Whereas

various disciplines contain colleges, societies or special interest groups for technical

areas of practice, there is no specialist group focused on business case development.

Such groups provide peer support and on-going professional development

opportunities. Whereas many technical areas of professional practice follow fixed

conventions and protocols, this research has shown that there is no consistency in

practice in relation to business case development in the water industry. This finding

would indicate the need for institutions that may support the development of capability

of practitioners and consistency in practice in both infrastructure agencies and in

consulting firms providing resource support. In the United Kingdom, this issue has


been addressed through the establishment of the Major Projects Leadership Academy,

which provides systematic, industry-wide training and development of practitioners

and assists in developing capability and skills across industry. The establishment of

such an academy in Australia was highlighted through the interviews as a key

opportunity to improve practice in both the public and private sectors across

infrastructure sectors, and ensure greater consistency in practice.

7.6.4 Inputs

The inputs to investment appraisal (Figure 6.9) are fundamental components of

business case development. Across the interviews, there was general agreement that

sustainability outcomes are dependent on transparent analysis that addresses financial

surety, risk and operational readiness. Cost and funding models are required as part

of budgeting processes and funding allocations, risk management is critical to effective

overall project management, and considerations of resource capability and long term

operational and maintenance matters are vital inputs to investment analysis. In a

sustainability framework, a broader perspective on these analysis inputs is required.

Cost and Funding Models

A lifecycle approach to cost models includes the capital costs associated with

planning, design and implementation, together with considerations of operations with

on-going maintenance and system monitoring. Numerous studies show that public

infrastructure projects are routinely subject to cost over-runs attributed to ‘optimism

bias’ and ‘strategic misrepresentation’ resulting in the underestimation of costs in the

business case (Flyvbjerg, 2005 ; Flyvbjerg, 2006; Flyvbjerg, 2009). In an Australian

context, a further element that contributes to cost overruns is changes in scope, which

can also be problematic, as ex-ante analysis involving project selection may be

distorted (Terrill et al., 2016). The misrepresentation of project costs does not support

a sustainability model based on principles of equitable and transparent outcomes in

decision making. Traditional approaches to cost estimating have relied on the addition

of a fixed contingency amount as part of the overall cost model. More recent studies

show that greater accuracy in cost estimation may be achieved through a risk-based

estimating (RBE). The RBE approach uses probabilistic modelling to incorporate costs

associated with both inherent risk (the uncertainty in pricing) and contingent risk (the

uncertainty in unforeseen events occurring during the life of the project).

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In addition, the incorporation of quality assurance systems may improve outcomes in

cost estimation. This may be achieved through independent cost reviews, or through

processes such as gateway reviews for high value/ high risk projects.

The selection and use of the discount rate when applied to both costs and

revenues is the subject of debate and on-going research in sustainability theory. The

choice of discount rate is a critical element of analysis, and it is usually linked to

market rates reflecting the opportunity cost of investing in public works. The

importance of the choice in discount rates has been highlighted in reporting on the

Wollongong to Sydney rail project. This project was shown to have limited benefits

based on government analysis that used a discount rate of 7.7%, and this compared

with a 2013 study that used a discount rate of 4% and projected a ‘strong’ case to

proceed (Martin, 2017). In traditional analysis, the discount rate reflects a ‘minimum

rate of return required from a safe investment project to make it socially desirable to

implement’ (Gollier, 2011). Put simply, the discount rate reflects the interest rates

applied in financial markets and the opportunity to invest otherwise in risk free

investments. For the water sector in Australia, a declared Weighted Average Cost of

Capital (WACC) is applied to capital expenditure as part a regulatory practice for

pricing decisions. The WACC varies according to market conditions. When applied

over time frames that are far into the future, the discount rate is problematic, due to

both uncertainty in using the past to forecast the future, and more pointedly for

sustainability, the implication that events in the distant future are of little consequence.

As such, some commentaries seek a discount rate of zero (Davidson, 2014), and others

call for the application of a ‘social discount rate’ (Gollier, 2011; Arrow et al., 2014) or

a time-declining discount rate (Weitzman, 1994). The ultimate choice of discount rate

should be based on rigorous analysis and scenario modelling and may form the basis

of negotiation with regulatory bodies.

The issue of identifying and confirming funding streams associated with

infrastructure investments is a core consideration for providers. When relying solely

on a fiscal revenue stream to cover the cost of investment, the broader financial, social

and ecological values associated with such investments are discounted. In the case of

demand management projects, revenues to infrastructure providers may actually be

reduced in terms of fiscal flow, but value is created in deferring the need for capital


investment. In the case where wider community value is created through an

investment, the use of revenues from general taxation should be considered.

As part of the sustainability investment logic proposed in this research, the value

assessment may inform the analysis and justification of alternative funding

contributions. These may be in the form of government grants (such as Community

Service Obligations29), funding allocations or considerations of ‘shadow pricing’

where, for example, health improvements associated with an infrastructure initiative

may be linked to funding associated with a government’s health budget. In addition,

the prospect of co-funding by other agencies or organisations was identified as

receiving value from the investment, whereby organisations such as local governments

have specific revenue raising opportunities through special rates and charges. Noting

that government funding for projects is increasingly difficult to obtain, the possibility

of identifying alternative financing mechanisms has emerged for governments and

infrastructure providers alike. The notion of value capture (discussed in Section 6.5.3)

has parallels with tax incremental financing that has more recently been promoted in

the water industry. Drawing on the challenges that apply to sectors such as start-up

businesses and charities, alternative financing mechanisms may be explored more

widely by infrastructure providers. Table 7.5 identifies a range of infrastructure

financing opportunities that have been identified to fund infrastructure, specifically for

climate change adaptation in Scotland. Based on this work, there is an opportunity to

undertake further research that identifies alternative financing opportunities for

sustainable infrastructure in an Australian setting.

29 Community Service Obligations are defined by Australia’s Productivity Commission as non-commercial requirements of government business enterprises for identified social purposes.

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Table 7.5

Financing mechanisms for climate change infrastructure in Scotland (from Roelich (2015))

Financing Option Brief Description

Tax incremental

financing

Applicable to local authorities through mechanisms such as Special

Charges, this concept is also being explored more broadly in Australia

through government policies on Value Capture.

Public Private

Partnerships PPPs

(Private Finance

Initiative)

PPPs involve a host government organisation purchasing a stream of

services, which entails the granting of a licence or concession to a

private provider based on specific terms and conditions to finance,

design, build operate and maintain an infrastructure service.

Climate Bonds Established to specifically address climate change mitigation or

adaptation, these bonds may be established by national governments,

corporations or international funding bodies and require full payment

of debt and interest, albeit at a lower interest rate.

Municipal Bonds Used in the United States, and increasingly in the United Kingdom,

this option requires the establishment of a central bond agency with

sufficient credit rating to both attract investors and to issue bonds to

worthy projects.

Social Impact Bonds Again emerging, these bonds require investors to provide funding for

projects with social outcomes with funding repaid when the required

outcomes are realised.

Crowd Source Funding Crowd sourcing is similar to a traditional loan, but instead involves

multiple lenders contributing to the same loan. This may be used for

projects where an income or savings can be generated to pay back

investors.

Equity based crowd

sourced funding

Similar to debt-based schemes, this option instead involves investors

taking ownership of the business. In this case, co-operatives and

community benefit societies may issue shares to fund the investment.

Investment funds Some investment funds have specific aims to fund sustainable

investments. An initial fund may be invested in projects, with repaid

capital used to fund further projects.


Risk

A seemingly conservative means of managing works in the public domain is to

adopt a ‘no risk’ approach whereby any areas of potential risk are used as ‘trump cards’

that are grounds for either rejection of proposals or reconfiguration to a less than

optimal solution. Typically, such considerations may apply to areas of health risk or

environmental risk. As an alternative, the discipline of risk management provides a

well understood approach within project management practice to consider risks more

systematically and identify means to potentially accept, mitigate or manage significant

risks. Risk management aligns with quality assurance processes, and risk management

practice should conform to international standard, ISO 31000. As noted previously,

risk management also informs cost models based on quantified values developed for

contingent and inherent risk.

Climate change science and the subsequent climate change risks have been well

documented based on on-going work by the Intergovernmental Panel for Climate

Change (IPCC). Key risks for urban environments include those associated with sea

level rise, extreme events, health (e.g. heat stress), energy availability and effects on

water resources and availability. Climate change risk assessment has added

complexity, in that identified risks have interdependencies across sectors and climate

risks have impacts across geographical and temporal scales (Dawson, 2015). The need

to incorporate climate change risk assessment forms part of sustainability assessment.

The importance of risk management was highlighted in interviews. However, it

was also noted that risk assessment incorporates a level of subjectivity. The layers of

uncertainty based on assumptions and inputs into investment appraisal may also apply

to risk assessment. Hence, quantitative approaches to risk assessment are useful in

informing the relative importance of risk items, but using scores as a determinant of

actions or infrastructure interventions should be approached with a level of caution.

Risk management processes are most effective when a collaborative, multi-

disciplinary approach is adopted. Using the water industry as an example, practitioners

are trained in a range of fields that include engineering, planning and natural resource

management and each of these professions provide a unique perspective and

contribution to risk assessment, and the consideration of climate change risks.

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Delivery Capability

New and sustainable design solutions to problems addressing areas such as

climate change or resource depletion require new methods or approaches to project

delivery. The delivery of new and innovative designs or approaches requires the

appropriate knowledge and skills base that is not only technically orientated, but also

brings skills from a broader perspective within a multi-disciplinary team. For complex

projects, the skills required may not be readily available within the infrastructure

agency. As an example, in developing products such as alternative (recycled) water

sources, delivery capabilities need to incorporate commercial, marketing and

diplomacy skills that support negotiations with business operators as potential

customers for products. The challenges in marketing recycled water products and

developing new markets, requires an understanding of customer needs and potential

barriers to uptake. Establishing project teams with the appropriate mix of capabilities

is critical to sustainable outcomes.

Asset Management and Life Cycle Analysis

A lifecycle approach to asset planning involves an understanding of the full

range of project benefits, key risks and the real costs associated with sourcing and

extraction of raw material, supply chains, construction processes and operation of an

infrastructure asset through to end-of-life. Life cycle assessment (LCA) supports

sustainability assessment as part of a holistic approach to analysis. LCA provides an

understanding of whole-of life costs associated with infrastructure investments and

should ensure that there is an appropriate allocation of resources to the operation and

maintenance of assets over their lifespan. In operation, asset management capability is

critical to the effective operation of infrastructure assets. The difficulties with LCA are

based on the uncertainties in predicting costs into the future, particularly in areas of

policy uncertainty. A recent example of uncertainty was the introduction of carbon

pricing, which was subsequently abandoned with a change of government.

7.6.5 From Trade-offs to Negotiation and Optimisation

Complex decision making often involves ‘trade-offs’ relating across the multiple

dimensions of economic, ecological and social goals and values. In economic analysis,

these trade-offs may be approached through aggregating techniques that reflect the

values and preferences of the decision maker (Walker, 2000). Trade-offs are not a

simple cognitive balancing of costs and benefits, but rather these often involve


emotional, moral or ethical issues. When applied to public goods, trade-offs are often

characterised by difficulties in measurement and comparison, raising issues of fairness

and equity. The interviews highlighted key aspects of trade-offs, or negotiation, as

• Project leadership- sometimes the organisation that initiates a project is not

necessarily best placed to take it forward. As an example, projects that

incorporate a strong planning focus may be best managed by local

government. Negotiation and agreement should determine who is best to

lead projects and take them forward;

• Project participation- projects do not necessarily reside in a single

jurisdiction or sector. The need to gain support from the institutions and

stakeholders, and to potentially contribute to projects either in direct

financial terms or in-kind, forms part of complex negotiations that are

required;

• Negotiable matters are significant trade-offs, in which impacts may be

substituted in time or place. Such substitutions raise issues of equity due to

difficulties in providing like-for-like substitutions or alternatives; and

• Non-negotiable matters are core criteria which, for economic, social or

environmental reasons, are not considered to be substitutable. A strong case

needs to be built on why these matters need to be respected and retained.

Figure 7.13 outlines the factors in the process for dealing with trade-offs, with

further discussion following.

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Figure 7.9. Trade-offs and Negotiation

Key principles and rules for activities relating to trade-offs in sustainability

decision making include:

• Ensuring an open and transparent process;

• Acknowledging the complexity of the systems in the assessment;

• Ensuring appropriate time and recourses are allocated to the process; and

• Enabling a clear approach to addressing trade-offs.

A sustainable approach moves the consideration of trade-offs from a singular

decision making domain to a forum for open negotiation. A participative approach

ensures transparency and seeks fair and equitable outcomes. A structured approach is

required, using the community and key stakeholders to identify and assess values.

Criticisms of the use of participative processes in the consideration of trade-offs

include a failure of participants to fully understand the range of issues that need to be

assessed. Hence, participative design needs to ensure that that community values may

be best represented, that the right expertise is engaged to inform and lead the process

and that appropriate processes are used to educate participants.

The discipline of dealing with trade-offs allows greater clarity in disaggregating

problems to understand the underlying benefits and values and the choices that can be

made between these. This inevitably involves moral, social, cultural and

environmental conflicts when values are simultaneously valued in multiple ways

(Trainor, 2006).

Principles

Participation

Values

Benefits

Who leadsWho participatesNegotiable values

Non-negotiable values


7.6.6 Decision Making

Decision-making for infrastructure projects is embedded in a wider institutional

and political environment that may determine priorities and the form of infrastructure

solutions. These additional considerations go beyond the formal analysis undertaken

by infrastructure agencies.

Project management theory distinguishes between decision making that is

tactical (based on time cost and quality dimensions), and decisions focused on strategic

performance. Strategic performance aligns with considerations of ‘doing the right

project’ (rather than ‘doing projects right’) and ensuring that projects are relevant,

effective, have the desired impact and are sustainable. In addressing strategic

performance, project initiators must recognise the complexity of projects and the range

of contexts such as the institutional setting, market demands, stakeholder needs, as

well as technological and environmental opportunities and issues.

The increasing role of the private sector in projects through Public Private

Partnerships (PPPs) and increasingly, as Market Led Proposals30, introduces additional

levels of risk and the need to balance commercial confidentiality with public interest

and accountability. In some cases, analysis can be deceptive, leaving scrutiny by law

makers and the general public at bay until it is too late and costs have already been

incurred (Flyvbjerg, 2009). On this basis, there is a need for accountability through

governance practices and critical review by independent specialists and organisations.

The political dimension of decision making is both accepted and criticised. For

some, it is the prerogative of elected government officials to make decisions that are

beyond the scope of analysis undertaken by the executive arm. Some key priorities of

government are built upon an understanding of community concerns and pressure

points. However, political priorities evolve over time and the influence and pressure

from stakeholders will also change. Some notable examples of political intervention

to initiate specific projects in the water sector, include decisions to build various

desalination plants across Australia and the North-South pipeline (or Sugarloaf

30 A Market-Led Proposal (MLP) is a proposal from the private sector seeking an exclusive commercial arrangement with government to provide a service or infrastructure to meet a community need. (From Queensland Treasury https://www.treasury.qld.gov.au/growing-queensland/market-led-proposals/)

220

pipeline) in Victoria. These projects were effectively fast-tracked, to address depleted

water supplies due to the millennium drought. In some cases, the perceived need to

expedite an infrastructure solution may overtake long term planning and analysis for

an alternative, more effective solution. Where political commitments to a specific

project solution are made prior to full analysis, agencies remain responsible for fully

informing decision makers of the full range of viable options, the risks of the preferred

direction and the opportunities foregone in pursuing a preferred direction. In reporting

on issues around the aborted East West Link (EWL) road project, the Victorian Auditor

General stated

I concluded that the EWL business case did not provide a sound basis for the

government’s decision to commit to the investment and that key decisions

during the project planning, development and procurement phases were driven

by an overriding sense of urgency to sign the contract before the November

2014 state election. Over the life of this costly and complex project, advice to

government did not always meet the expected standard of being frank and

fearless (Victorian Auditor General’s Office, 2015, p. iii).

As the lines between the public sector and private sector service providers

becomes more blurred, the need for strong and transparent processes to manage the

organisational and political systems involved in decision making grows in importance.

Within a sustainability model, the analysis provided by infrastructure agencies to the

political arm of government needs to be independent, and meet the standard of being

‘frank and fearless’.

7.6.7 Performance assessment and reporting

The need to align projects with stated policy positions and corporate goals has

been previously stated. Monitoring and reporting plays an important role in assessing

whether project-level outputs and outcomes (benefits) have been realised and that

broader policy intent has been addressed.

Assessing project performance is an important step in understanding how a

project contributes to government policy, whether projected benefits were achieved,

how assessed values were incorporated in the works, and whether costs were managed

effectively. Young et al. (2012) identified the role of independent arms of government

(as an example, Audit Offices operate in some jurisdictions) to provide oversight of

stated claims made in business cases. The literature has identified a clear gap in


industry practice concerning reviews of project performance on completion. Where

project reviews are carried out, the emphasis is on the ‘iron triangle’ of project

management (time, cost and quality), with little regard to the benefits realised. In

studies on major public sector projects in both New South Wales and Victoria, research

has shown that there is no systematic reporting, or any clear concerted effort to ensure

that projects are achieving strategic goals ( Young & Grant, 2015;Young et al., 2012)

In Section 7.5, the hierarchy of an infrastructure business model for projects

from inputs to impact was introduced prior to the explanation of a sustainability

investment logic. Building upon the infrastructure business model, Figure 7.10

presents a hierarchy of ex-post project reviews that would be expected as part of the

sustainability investment framework. Performance assessment needs to take account

of the timeframes required for the impact of project investments to be realised. A

further discussion of the components of the proposed performance assessment

framework follows.

Figure 7.10. Performance Assessment Framework for projects

Contribution to policy goals

Projects contribute to policy goals, however the contribution of individual

projects to broader policy goals may be difficult to attribute. An example of a policy

document is Water for Victoria, the Victorian Government’s long term plan for

managing water resources across the state (previously discussed in Section 7.6.3). It is

the responsibility of the central agency (in this case the Department of Environment

Water Land and Planning) to set goals, develop an action plan and monitor progress

Cost review

Value created

Benefits realisation

Contribution to policy goals

222

against goals. As an example, Water for Victoria sets out priorities for addressing

waterway and catchment health and this involves setting water quality indicators and

objectives. Whilst the government agency is responsible for measuring performance

against policy goals, the activities of water utilities, as infrastructure providers, may

directly impact on these goals. Water for Victoria provides an example whereby an

alternative to upgrading a waste water treatment plant (with resulting increased

nutrient loads into waterways) could involve water utilities working with landowners

to improve on-farm nutrient management practices.

Benefits Assessment and Realisation

The process of Benefits Management includes the initial stage of benefits

assessment, and when projects are implemented, benefits realisation assessment

ensures that benefits associated with the investment are actually achieved. In studies

focused on the nexus between project benefits assessment and benefits realisation

across government departments in both Victoria and New South Wales, it was noted

that in Victoria,

Monitoring is also narrowly focused on asset investments and mainly on

project management concerns e.g. funds spent on the specified project within

the specified timeframe. There appears to be no monitoring of delivery of

programmes of work (that include complementary soft projects) or the

realisation of strategic goals ( Young et al., 2012, p. 896).

Formal reporting processes provide a disciplined approach to monitoring and

reviewing performance against benefits envisaged. Studies of current practice indicate

that infrastructure providers have yet to effectively implement benefits realisation

processes.

Value Created

The ex post assessment of value created needs to assess actual outputs in terms

of value against the dimensions of value that were projected in investment appraisal.

This assessment assesses economic, development, ecological and cultural outputs of

projects- that is, were the projected values achieved through the investment? The

assessment of value created would include both quantitative and qualitative

assessments against the value dimensions identified in ex-ante analysis.


The Global Reporting Initiative (GRI) provides an example of an organisation-

level sustainability reporting framework. Alternatively, Yarra Valley Water’s

Integrated Profit and Loss report provides an example of a bespoke sustainability

reporting framework that may be used in the future to assess the value of infrastructure

investments. Sustainability reporting initiatives present an opportunity for

infrastructure providers to assess and report on the value that project level investments

contribute to the overall value provided by those organisations.

Cost Review

A review of international projects has shown that there is little consideration to

ex-post reviews that compare projected and actual costs and benefits forming the basis

of initial CBA submissions (Flyvbjerg, 2006). A review of project management

practice in the state of Victoria by the Victorian Auditor General’s Office noted:

.. for the public, knowing the status, progress and outcomes of capital projects

is currently difficult as there is limited information made publicly available.

The public must search various information sources and even then is only

likely to gain a limited understanding of progress against cost and time

targets (Victorian Auditor General’s Office (VAGO)b, 2016,p. 5)

At the inputs level of the performance assessment, data on costs that are actually

incurred may form the basis of industry-wide database repositories and information

systems, providing valuable insights for lessons learned and estimating for future

projects.

7.6.8 Implementation- the use of pilot projects

Previous discussions have noted the levels of uncertainty in ex-ante assessments

of the benefits and value that may be created through an infrastructure investment. The

research also revealed that an effective mechanism to assess the potential benefits and

value created from a project is through the development of pilot schemes or small-

scale initial stages of projects. These may be useful in assessing new and untested

approaches in integrated water management, in that they may mobilise new actors, and

generate new rules and knowledge at a local scale that can be applied to a broader scale

(Brown & Farrelly, 2009).

224

7.7 APPLICATION OF SUSTAINABILITY INVESTMENT LOGIC AND APPRAISAL MODEL

In order to illustrate the practical application of sustainability investment logic,

Figure 7.11 has been developed for a hypothetical scenario around more effective

management of water resources. The derived solution, in this case, is a storm water

harvesting scheme generated from existing piped systems, creating a storage/

balancing pond, and installing reticulated pipes to allow irrigation of surrounding

parklands. In this case, the project drivers are based on corporate goals and strategies,

the benefits or outcomes may be represented as measurable targets or KPIs, and the

values accrued from the infrastructure solutions include a range of quantifiable and

intangible values with multiple dimensions. As an example, ‘recreational value’ may

relate to health improvements due to enhancing open spaces for active sport, and may

also describe the value of increased visitation for bird watching activities. Community

values may relate to passive social networking activities or active opportunities to

develop community gardens.

Figure 7.11. Application of Sustainability Investment Logic

Reducedemandforpotablewaterforirrigationinparks

Benefits Solution Value

Enhancereputationofserviceprovider

Decreasednitrogenflowstoreceivingwaterbodies

Stormwaterharvestingscheme,waterstorageand

reticulation

Agreementswithcouncilstoacceptharvestedwaterfor

irrigation

Offsetcostsofcapitalworksupgrade(treatmentofpollutants)

Nativevegetationprovidinghabitatand

addressingbiodiversitylosses

Recreationalspace

valueCommunityspace

value

Newbusinessopportunitiesforinvestmentnear

enhancedopenspace

Driver

Contributetocity’sliveability

Buildresiliencetodrought


Increase%ofshadetrees/canopyinthe

city

Agreementswithbusinessestoacceptharvestedwaterfornon-potableuses

Providesustainabilityleadership


As noted previously, the overall appraisal model developed in this research is

not intended for the water sector alone, but may apply to other infrastructure sectors,

or indeed across infrastructure sectors taking account of the interdependencies of

infrastructure. A key consideration for any investment is the initial framing of the

sustainability goals and benefits that are envisaged, and the range of solutions that may

ensure that these be achieved. This contrasts with a common ‘output-focused’

approach that firstly identifies a preferred infrastructure solution, followed by framing

an economic justification around that solution and the allocated budget (Chih and

Zwikael 2015).

In relation to the overall model presented in Figure 7.6, the following table

(Table 7.6) has been constructed to summarise the list of the key considerations for

each component of the model.

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Table 7.6

Key Considerations for Sustainability Model

Model Component Key Considerations SUSTAINABILITY COMMITMENT Align with SDGs, government policy and

organisation strategies and plans Establish a reporting framework

PARTICIPATION Identify a participation model – instruments may be designed and adapted throughout the decision-making life cycle

ENABLERS: Regulation and Governance

Establish a governance structure and framework Consult with regulatory bodies throughout

Leadership Organisational leadership Individual leadership

Capability and skills Selection of practitioners and teams Training and development of practitioners Institutional support for capacity building

BENEFITS ASSESSMENT:

(Part of a Sustainability Investment Logic)

Work with stakeholders (including end users) to identify benefits that align with policy priorities in the following domains:

• Community development • Customer • Business

VALUE ASSESSMENT:

(Part of a Sustainability Investment Logic)

Work with stakeholders (including end users) to identify potential value linked to project scope in the following value domains:

• Economic • Development • Ecological • Social

INPUTS: Cost and Funding Identification of financing streams Life cycle approach Costing based on risk- based evaluation Choice of discount rate

Risk Employ a risk management approach Incorporate climate change risks

Delivery capability Ensure appropriate project resourcing Asset management Life cycle assessment

Provision for operations and maintenance TRADE OFFS Negotiations within business

Negotiations with external parties Community input

DECISION Political context Organisational context Priority setting

IMPLEMENTATION Benefits realisation Reporting Pilot studies

7.8 THE RESEARCH QUESTIONS

This study was initiated to further explore current practice in infrastructure

investment appraisal and address the following research questions:


(1) Do corporate sustainability goals stated by infrastructure agencies translate to


projects?

(2) What is an optimal system approach to support project selection and decision


The first research question was addressed by an initial survey, and was explored

further in subsequent interviews. The outcomes of the research indicate that appraisal

practice varies across industry with no uniform procedures or approaches to project

level decision making. The research has shown that many organisations with strong

commitments to sustainability continue to be challenged in systematically translating

these commitments to decision making.

In addressing the second research question, a model has been developed, taking

account of the elements that were identified through the research as contributing to a

sustainability framework. As part of the model, a sustainability investment logic has

been proposed to align the benefits projected for an investment, the tangible and

intangible value dimensions that are proposed from the investment and the framing of

the investment solution that is proposed. This model challenges current practice that

continues to favour CBA, or adaptations and interpretations of the CBA methodology,

whereby analysis is applied to a pre-determined project solution.

7.9 SUMMARY

In initiating this research, a preliminary conceptual model framed the design of

a survey that was distributed to industry experts (Stage 1), together with interview

questions for industry practitioners (Stage 2). The initial model was constructed with

the view that a practical approach should incorporate CBA, given that it is often

mandated for use, and that a broader approach would better adapt its use for

sustainability practice. Whilst only a small sample of experts participated in the Stage

1 research, the results, when analysed with Stage 2 research results, reinforced findings

on current practice in investment decision making. In summary, current practice

employs a range of analysis techniques, but CBA is commonly applied, particularly

when business cases are subject to review and oversight in a regulatory setting.

228

The limitations of CBA are well understood by practitioners, and yet across the

decision-making domain, and in wider public discourse, it continues to be a

determinant of whether projects proceed or not. Through both stages of the research,

it has been found that CBA is not well placed to support sustainability practice.

Adaptions of CBA including Advanced or Extended CBA seek to better align with

sustainability assessment. However, the ability to develop an integrated assessment of

the full range of economic, social and ecological values associated with infrastructure

initiatives remains a challenge. CBA can be an effective analysis tool when it is used

as a framework to incorporate both monetary and intangible values provided by an

investment and when this is understood by the audience. It is least effective when used

as a point-value, go/no go decision tool.

This research proposes an alternative approach. Firstly, using the sustainability

investment logic process that has been developed, benefits and values associated with

an infrastructure investment may be fully explored with a range of stakeholders

including community end-users. The sustainability investment logic seeks to link the

problem definition and the identification of solutions with the strategies and policies

of government, particularly where these align with sustainable future outcomes.

Values are plural, interconnected and can only be fully understood by working with a

range of community members, end users, representatives of business interests, and

stakeholders from across government and industry. Benefits relate to project outcomes

and represent the long term contributions of a project to society.

Building on the sustainable investment logic, an overall model has been

developed that identifies inputs and enabling factors to the decision-making process.

The inputs represent a formal rationality approach within the model and acknowledge

that sustainable outcomes are built on financial prudence, an understanding of risk,

and the ability to develop capability and capacity for project execution, service

operations and maintenance. The enablers recognise the organisational context of a

decision-making process, and the need to ensure that an appropriate institutional

setting is in place. The model recognises the need for collaboration in the

considerations of trade-offs across value domains within the constraints of the project

scope and budget. Across the model, the participation of stakeholders is critical. A

sustainable approach recognises that decision making is a collective activity and


should not be based on the preferences of a few technocrats within an infrastructure

agency.

This work responds to calls for new approaches in applying economic analysis

to decisions that are complex and value-laden. In doing so, the research traverses

various disciplines that include sustainability, engineering, planning, project

management, business management and economics. The results and findings of this

research reflect an understanding of how elements from various disciplines need to be

brought together, and integrated. New ways at looking at complex, multidimensional

problems, involve a multi-disciplinary approach that draws on a range of perspectives.

230

Chapter 8: Conclusions

For cities and towns to thrive and advance, decision makers must respond to on-

going pressures such as changes in demographics (growth or de-growth), ageing

services and, increasing, climate change impacts. The provision of appropriate and

timely supporting infrastructure is an essential factor in supporting urban development.

Public infrastructure has the potential to provide a range of positive outcomes, such as

providing environmental services, shaping urban environments and supporting

cohesive and safe communities. On the other hand, poor decisions may leave a legacy

of unwanted, redundant or inappropriate infrastructure. Across the world, there are

examples of freeways that have been removed, rail lines that have been re-purposed

and dams that have been decommissioned, allowing greater value to be realised in the

restoration of natural systems. The decisions of today will have far-reaching impacts

into the future.

In the introduction, it was noted that decisions of public authorities in the 1960s

led to the construction of the Brisbane Riverside expressway seeking to improve the

‘automobility’ of a growing city. Those planning decisions played a significant part in

shaping the urban fabric of Brisbane, as the former central civic area effectively turned

its back to the waterfront. In contrast, plans for an elevated expressway that would

separate the Vancouver waterfront from its central business district were thwarted,

largely due to government officials heeding the vocal protests of affected citizens also

in the 1960s. As a result, Vancouver has retained a thriving Chinatown district, and

has maintained an active linkage with its waterfront, all contributing to declarations of

Vancouver being one of the most liveable cities in the world.

Those decisions, and many that have shaped cities and towns, were from an era

when decision making was top-down, and when communities placed a level of trust in

public sector bureaucrats on the basis of their expertise and position. This research

focuses on decision making in the era of sustainable development, as notions of

sustainability were advanced in the 1970s. As such, the participants in this research

have practised in the period since the term ‘triple bottom line’ was introduced and

applied widely across the public sector. Within this era of sustainability, there has been

a growing acceptance that sustainability initiatives should be incorporated into design


solutions, and an understanding of the need to manage resources more effectively.

However, this research shows that decision making at the front end of projects, when

the greatest contribution to sustainability outcomes may be achieved, is often hindered

by attempts to apply a lens of formal rationality to analysis.

Decisions on major investments continue to be contained within a narrow frame

of costs and benefits/value as part of a pass/fail rule. As institutions seek to improve

decision making by introducing economic, and seemingly rational approaches to

investment analysis, the incorporation of sustainability assessment has either been

forgotten or applied in an ad-hoc way.

The decisions of today have the potential to provide future generations with a

rich legacy of efficient, connected and relevant infrastructure that will meet the

challenges and opportunities of society. Conversely, if decisions of today lead to sub-

optimal infrastructure outcomes, future generations may be subject to cost and

resource commitments to either fix or replace those investments. This research seeks

to contribute to better decision making.

8.1 SUMMARY OF RESEARCH

This research has developed a greater understanding how the sustainability

aspirations of infrastructure providers are translated into the decision-making

processes in the pre-investment stages of the project life cycle. In doing so, a model

has been developed for applying a sustainability framework to decision making,

providing a new perspective on decision making for public infrastructure investments

The research questions have been integral to the design, implementation and

analysis of the results. The first research question asked

Do corporate sustainability goals stated by infrastructure agencies translate to


projects?

The first phase of research, reinforced by the second stage, provided clarity in

addressing this question. The initial survey showed that sustainability goals are not

systematically applied in the analysis that supports investment decision making.

Across the organisations represented in the survey, there is general agreement that a

232

sustainability approach is supported by participation by stakeholders (including end

users), lifecycle analysis and investment management standards. However, the choice

of analysis technique is dependent on the problem being addressed and there is no

overall agreement on whether either CBA or MCA support sustainability practice. The

survey also showed that there is a lack of industry guidance on incorporating

sustainability in investment decision making.

The second research question continued to search more deeply, and asked,

What is an optimal system approach to support project selection and decision


The second phase of research involved a series of semi-structured interviews

with practitioners across the water industry. Again, the interviews revealed a range of

techniques that are employed in investment analysis. A qualitative approach to this

stage of research provided a greater understanding of why certain techniques were

employed and the challenges that are faced in analysis.

In order to propose an optimal system approach, the starting point for this

research was to accept that CBA is often mandated for investment analysis, and that a

practical approach would be to assess how it could be ‘patched’ to better address

sustainability. The use of CBA satisfies a need to apply a lens of rationality to decision

making. However, this proposition was rejected in view of the limitations of CBA

when applied to sustainability practice.

In rejecting the first position, the research sought to develop an alternative model

for practice. Through a process of descriptive and evaluation coding, together with an

on-going process of reflection and evaluation, the research achieved a narrowing of

research concepts to formulate a conceptual model. The model construct aligns with

concepts of bounded rationality. As such, there is recognition of human preferences

for goal orientation, provision for adaptability and uncertainty, and the need to make

trade-offs. Aspects of formal rationality form part of the ‘inputs’ stream of analysis,

based on the understanding that sustainable outcomes are built on financial prudence,

an understanding of risk, and the ability to develop capability and capacity for project

execution, service operations and maintenance. Figure 7.8 presents the model

developed through this research. The components of the model include


• A sustainability commitment;

• Participation by stakeholders including end-users throughout the decision-

making process;

• Enablers: regulation and governance, leadership, capability, and skills;

• Benefits assessment: community, customer, business;

• Value assessment: economic, development, ecological, social;

• Inputs: cost and funding, risk delivery, capability, asset management;

• Trade-offs and negotiation;

• A decision; and

• Implementation.

At the core of the model is the need to establish sustainability investment logic,

based on aligning potential benefits with higher order policy and strategies, and linking

these to an array of values that may be achieved through the investment.

Participation by community members, end users, representatives of business

interest, and stakeholders from across government, is required across all steps of the

model. The instruments for a participation framework may vary across various steps

of analysis, however it is critical that a broad representation by interested parties is

involved in establishing project benefits and identifying project values, and in

informing the process of trading off aspects of priorities or scope as part of ultimate

decision-making.

The initial research objectives were addressed in that:

• Both stages of the research showed that there is no uniform approach to

incorporating sustainability in investment decision making across the water

industry;

• The research showed that wider institutional factors including system

boundaries are a critical consideration to sustainability outcomes; and

• The research highlighted that the framing of value is a complex but critical

component of analysis and the sustainability investment logic that is

proposed through this research provides a framework to assess value.

234

8.2 IMPLICATIONS FOR PRACTICE

This research has sought to develop a deeper understanding of analysis processes

for infrastructure investment appraisal in a strong sustainability framework. A

sustainability framework recognises that there is greater complexity in decision

making, and that there are multiple dimensions to both problems and solutions

associated with infrastructure challenges. Across infrastructure sectors, new

approaches for infrastructure have been proposed to address sustainability challenges.

In the water sector, Integrated Water Cycle Management provides an example of an

alternative solution to business-as-usual approaches in water resource management

that may generate benefits at a community scale, and generate values across social,

ecological and economic dimensions. And yet, current approaches to appraisal fail to

fully represent these benefits and dimensions of value.

The review of literature that underpins this research has required a practical

understanding of the processes involved in investment decision making, informing a

process of sourcing critiques from across a range of disciplines. The topic of Benefits

Management is an emerging subject within the project management domain

(originating for information technology projects), and an understanding of the

importance of strategic success in addition to tactical success of projects. The

literature on Benefits Management and Benefits Realisation is limited, but points to a

growing use of these methods in public administration, and the opportunity to develop

more case studies to demonstrate best practice.

On the other hand, the literature on ‘value’ has been derived from a range of

topic areas including environmental management, ecological economics, economics,

planning, engineering and sustainability. There is a clear research gap relating to the

application of the concept of the multiple values of infrastructure when viewed in an

Australian context. As an outcome of the interviews, examples of projects in New

Zealand that incorporate cultural values were identified, and it was seen that such

approaches would need to be adopted in Australia, particularly in response to new

policies relating to Aboriginal and Torres Strait Islander values, and their application

to works in the public domain. The case study research and practice in relation to

cultural values in an Australian context is still emerging.

In addition, the research has identified the on-going conflation of the disparate

concepts of benefits and value. This conflation occurs as the benefits of CBA are


represented as a dollar value. The literature review revealed only limited coverage of

this issue, and the infrastructure business model approach that differentiates between

impacts, outcomes (benefits), outputs (value) and inputs (considerations of cost,

funding and risk) provides a useful model to understand the different layers of analysis

that form part of the investment appraisal process. In practice, a greater understanding

of the need to address benefit and value separately may provide greater clarity to

business case development.

The literature on alternative funding models for infrastructure in Australia is

limited, with the focus currently on the mechanism of Public Private Partnerships

(PPPs). Public discourse also has presented the opportunity of funding works through

infrastructure bonds, and current policies are promoting the concept of value capture.

From UK research (Roelich 2015), new forms of infrastructure delivery may present

new funding mechanisms, such as more localised, community schemes financed

through crowd funding. A recent US study has identified a need to remove barriers to

allow private capital to provide innovative financing solutions for water infrastructure

investments (Patterson, Doyle, & Buckley, 2016). The opportunity to explore the full

range of potential infrastructure funding mechanisms in an Australian context is

apparent, with consideration of the legal and financial instruments that may enable

infrastructure delivery.

The need to improve practice in investment decision making is evident, but the

institutional settings for decision making, continue to ensure that only incremental

change is possible. Hence, the focus continues to address how to improve the rational

approach of CBA. The theory of bounded rationalism, espoused by Herbert Simon,

presents an alternative lens on rationality taking account that decision making is based

on incomplete information and uncertainty. This uncertainty is linked to the ability to

identify the multiple values that may be attributable to an infrastructure investment,

and a sustainability framework presents a way forward to better frame investment

appraisal. The sustainability investment logic proposed in this research seeks to

reconcile the sustainability goals that are stated by infrastructure providers and the

decision-making process that determines which projects are delivered, and in what

form.

Although this research has been based on practice in the water sector, the model

that has been developed is intended to apply across all infrastructure sectors. For the

236

road transport sector, values that are currently applied in CBA, largely addressing

modelled improvements for road users, would be broadened to address wider

community values and outcomes. In addition, the model could apply to the energy

sector, noting that UK research is looking to develop decision-making models that

account for the wider values of localised responses to develop heat networks, including

issues of energy poverty (Foxon et al., 2015).

8.3 IMPLICATIONS FOR THEORY

This research contributes to theory by using empirical research to identify

attributes and features of investment appraisal that incorporates a sustainability

approach. Such an approach is critical in justifying new responses to emerging

problems in areas such as climate change adaptation, and opportunities to better

capture societal values.

A key implication for theory is the decoupling of benefits and value in

investment appraisal. The benefits of traditional CBA involves a conflation of benefits

and value, and hence a combination of higher level outcomes and outputs of

infrastructure investments. The separation of benefits management and values

assessment, proposed as part of the sustainability investment logic in this research,

presents a new theoretical approach. In doing so, the sustainability investment logic

that is proposed presents a new theoretical approach to infrastructure investment

appraisal.

A feature of the model developed from this research is the ability to provide an

integrated approach that more appropriately takes account of social aspects and notions

of community development and cultural values. A sustainability approach to decision

making adopts a participatory approach through all stages of the decision-making

process.

8.4 LIMITATIONS OF RESEARCH

In Section 7.6.1, it was noted that research participants espoused four broad

positions on how investment appraisal may most effectively align with sustainability.

Across the research, the merits and issues associated with various approaches were

also articulated. The model developed as part of this research represents a consolidated

and optimal approach based on the responses from various research participants. The


model draws on a range of approaches and does not represent any one single view

regarding a sustainability framework. The model that has been developed has yet to be

validated or tested with industry practitioners. This next step is provided as a

recommendation for further research.

8.5 RECOMMENDATIONS

The findings of the research revealed areas for further research and areas for

improvement by industry as a whole these recommendations are outlined below.

8.5.1 Recommendations for further research

The scope of the model developed for sustainability investment appraisal is

broad. As such, more research is recommended to build upon the overall model,

together with more detailed analysis of components. The following recommendations

relate to further research in relation to the model that has been developed as part of

this research.

Recommendation 1:

The core intent of this research is the application of the model to water resource

management and particularly, opportunities for IWCM or ‘green infrastructure’. Other

applications may include transportation, coastal infrastructure, energy and

communications infrastructure.

It is recommended that case studies should be identified to test and further develop and

refine the model, using examples in a range of infrastructure sectors.

Recommendation 2:

The sustainability investment logic proposed by this research builds on the principles

of investment management and is yet to be tested.

It is recommended that further research be undertaken to develop case studies that

apply the sustainability investment logic to infrastructure projects across sectors.

Recommendation 3:

238

This research has considered value that relates to the tangible and intangible outputs

from infrastructure investments. In building a greater understanding of these values,

investment appraisal may be improved.

It is recommended that further research address the multiple and interlinking values of

infrastructure, with a focus on the social domain.

Recommendation 4:

The literature and research has identified a clear gap in industry practice concerning

reviews of project performance on completion. Where project reviews are carried out,

the emphasis is on the ‘iron triangle’ of project management (time, cost and quality),

with little regard to the benefits realised. As the discipline of benefits management

evolves and becomes further entrenched in public sector management, the need to

assess actual benefits realised through projects, and the alignment of projects with

government policy positions, requires further development.

It is recommended that further research address the benefits management practices of

public sector infrastructure providers to assess alignment of benefits proposed against

actual benefits realised.

Recommendation 5:

As public sector budgets become more constrained, the need to develop broader

financing and funding mechanisms for infrastructure is gaining importance. Drawing

on international studies, new ways of financing infrastructure are being identified.

These are subject to the institutional and legal settings of specific jurisdictions.

It is recommended that further research is initiated to identify new and innovative

funding mechanisms for sustainable projects in an Australian context.

Recommendation 6:

This research has focused on the components and enablers for incorporating

sustainability in decision making.

It is recommended that further research also address the barriers that may ensure that

the status quo remains, and sub-optimal approaches continue to be employed.


8.5.2 Recommendations for Industry

The research findings also identified improvement that may be made across the

infrastructure industry. Capability improvements may be achieved through

recognising the complexity of decision making, and the need to apply knowledge

across a range of disciplines and work with a range of stakeholder and community

interest groups. This broad skill set, together with experience-based capability

development, is seen to be an important contributor to successful business case

development. The Major Projects Leadership Academy run by the UK government in

conjunction with Oxford University’s Said Business School provides an example of

capability development models for the public sector and practitioners in business case

development that have emerged in the United Kingdom. The opportunity to establish

a community of practice in business case development through either academic,

government or industry membership bodies may potentially allow greater consistency

in practice and improve the capability of practitioners.

Recommendation 7:

Business case development is complex and requires a range of skills from critical

thinking and analytical ability, financial skills, to understanding and explaining highly

technical engineering schemes. Building capability and capacity of practitioners may

contribute to more effective decision making in relation to infrastructure priorities,

with wider impacts for the economy.

It is recommended that opportunities to develop industry capability in business case

development be identified through collaboration between government, academic

institutions and industry associations.

240

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Appendices

Appendix A

Key Survey Questionnaire

1. Does your organisation have corporate sustainability goals? (These may be in the form of publicly statedstrategies, objectives or targets)

If you answered "yes" to Question 1, please answer Question 2, otherwise proceed to Question 3.2. Please provide details your organisation's sustainability statements, objectives or targets. If relevant, includethe name of the relevant document and/or a URL link to the relevant document.

3. Are sustainability initiatives incorporated into project solutions at design, construction and/or operationsphases of project delivery?

4. Are sustainability considerations applied to investment decision making for projects? For this research, thismeans the consideration and selection of project options, and the initial definition of project scope.

5. What guidance material is used to inform investment decision making for major infrastructure initiatives? (Examples may include central agency/ treasury guidelines, in-house processes, guidance from industry associations)

Incorporating Sustainability Assessment inInvestment Decision Making for InfrastructureThis survey is being conducted as part of a PhD research at the QueenslandUniversity of Technology on the topic "Incorporating sustainability in theinvestment decision making process for infrastructure projects". As part of thisfirst stage of the research, a cross-sectoral study will assess how sustainabilityconsiderations are incorporated into decision making processes by infrastructureproviders. Whilst there are a range of definitions and interpretations ofsustainability, this research is seeking to relate how various organisationalcommitments to sustainability (generally including economic, social andenvironmental dimensions) are translated into decision making processes. Thesurvey will be analysed and reported from an industry-wide viewpoint and it is notintended to report any individual results from the survey. Thank you forundertaking to complete this survey.

Yes

No

...........................................................................................................................................................................................

...........................................................................................................................................................................................

...........................................................................................................................................................................................

...........................................................................................................................................................................................

Yes

No

If yes, are any specific tools used (e.g. the Infrastructure Sustainability Council of Australia (ISCA) tool, in-house tools or other proprietary tools)

...........................................................................................................................................................................................

Yes

No

Page 1 of 5

266

Appendix B

Interview Schedule- Agency Representatives

Topic Introduction

Provide my background Give overview of the research project Confirm expected length of time for interview Confirm that it will be recorded and that interviewee has consented to recording of interview Define terms that will be used – “decision making”, “infrastructure” and “business case”, “ institution”, “boundaries”.

Background Could you tell me a little about your professional background? Background Could you tell me about your current role in the organisation? Background Could you give me an overview of your role in business case

development? Sustainability- general General Question How would you define sustainability? Probes Can you tell me how sustainability is viewed in your organisation? Are you aware of your organisation’s sustainability commitments? In what ways does your organisation demonstrate sustainability

commitments? What are the benefits or dis-benefits of adopting sustainability in

organisational activities? Current practice- analysis

General Question Can you describe the analysis processes that are typically used to identify and bring forward major project proposals?

Probes How do emerging projects outside of medium to long–term capital works plans/ programs (to address new priorities or issues) get advanced?

What assessment processes are used- eg CBA, MCA, ROA, LCA How are the requirements of analysis process documented? (What are

the key reference documents?) How are the outcomes of the analysis process documented? Current practice- decisions

General Question Can you describe the decision making process that leads to the approval of projects (from option analysis to implementation).

Probes How does community participation inform decision making- if at all? What is the role of central agencies in government and regulatory

bodies? What is the role of project board, government stakeholders, other levels

of government If applicable, what is the role of any statutory board providing

oversight of your organisation? Assessment of process General Question What does your organisation do to incorporate sustainability in

decision making processes Probe Questions Would you describe the processes used as systematic or opportunistic? Do you think that other organisations apply the same processes as your

organisation? What are the barriers to incorporating sustainability in practice? System Considerations General Question Current practice is subject to a number of boundary

considerations that may include: governance/ institutional


responsibilities; scale of analysis ;and interactions with other infrastructure sectors. In your experience, how do boundary considerations impact on the ability to apportion costs and benefits of infrastructure works?

Probe Questions Are there any other system considerations that impact on the effectiveness of decision making to incorporate broader sustainability considerations.

Outcomes General Question Can you give examples of good sustainability outcomes, and the

factors that supported project success? Probe Questions How is sustainability actively promoted- across industry and with

communities? What is the role of industry advocacy organisations in promoting

sustainability? Reflections General Question What, if any, changes do you think should be made to ensure

sustainability is incorporated in investment decision making? Are there broader changes required across industry? Conclusion General Question Is there anything else that you would like to say about any of the

things we’ve covered today? Or anything else that might be relevant to this research?

Do you have any questions for me?

268

Appendix C

Interview Schedule- Independents (consultants)

Topic Introduction


Background Could you tell me a little about your professional background? Background Could you tell me about your current role in the industry? Background Could you give me an overview of your role in investment decision

making? Background At what point of the project lifecycle are you engaged by project

proponents? Background What experience/ expertise do you provide to the assessment process? Sustainability- general General Question How would you define sustainability? Probes Can you tell me how sustainability is viewed in organisations that you

work with? What are the benefits or dis-benefits of adopting sustainability in

organisational activities? Current practice- analysis

General Question Can you describe the processes that are typically used to identify and bring forward major project proposals?


What assessment processes are typically used- eg CBA, MCA, ROA, LCA

How are the requirements of analysis process documented? (What are the key reference documents?)

How are the outcomes of the analysis process documented? Current practice- decisions

General Question Can you describe the decision making process that leads to the approval of projects (from option analysis to implementation).

Probes How does community participation inform decision making- if at all? What is the role of central agencies in government and regulatory

bodies? What is the role of project board, government stakeholders, other levels

of government If applicable, what is the role of statutory board providing oversight of

organisations? Assessment of process General Question How do you consider that sustainability is incorporated in decision

making processes Probe Questions What are the barriers to incorporating sustainability in practice? What is the role of industry advocacy organisations? System Considerations General Question Current practice is subject to a number of boundary

considerations that may include: governance/ institutional


responsibilities; scale of analysis ;and interactions with other infrastructure sectors. In your experience, how do boundary considerations impact on the ability to apportion costs and benefits of infrastructure works?

Probe Questions Are there any other system considerations that impact on the effectiveness of decision making to incorporate broader sustainability considerations.

Reflections General Question Can you give examples of good sustainability outcomes, and the

factors that supported project success? At an industry level, how can consultants best contribute to project

decision making? What do you think needs to be done to improve industry practice? Conclusion General Question Is there anything else that you would like to say about any of the

things we’ve covered today? Or anything else that might be relevant to this research?


270

Appendix D

Interview Schedule- Central Agencies

Topic Introduction


Background Could you tell me a little about your professional background? Background Could you tell me about your current role in the organisation? Background Could you give me an overview of your role in business case development? Background At what point of the project lifecycle are you typically involved in project

analysis? Sustainability- general

General Question

How would you define sustainability?

Probes Can you tell me how sustainability is viewed in your organisation? How do you see sustainability applied in infrastructure agencies? What are the benefits or dis-benefits of adopting sustainability in organisational

activities? Current practice- analysis

General Question

Can you describe the processes that are typically used to identify and bring forward major project proposals?


What assessment processes are used- eg CBA, MCA, ROA, LCA How are the requirements of analysis process documented? (What are the key

reference documents?) How are the outcomes of the analysis process documented? Current practice- decisions

General Question

Can you describe the decision making process that leads to the approval of projects (from option analysis to implementation).

Probes How does community participation inform decision making- if at all? Can you explain how your inputs are incorporated into the decision making

process? Can you discuss the role of the project board, government stakeholders, and

other levels of government Can you discuss the role of statutory boards, if applicable, in the decision

making process? Assessment of process

General Question

How do you consider that sustainability is incorporated in decision making processes

Probe Questions

Can you give examples of good sustainability outcomes, and the factors that supported project success?

How are sustainability actively promoted- across industry and with communities What are the barriers to incorporating sustainability in practice?


What is the role of industry advocacy organisations? System Considerations

General Question

Current practice is subject to a number of boundary considerations that may include: governance/ institutional responsibilities; scale of analysis ;and interactions with other infrastructure sectors. In your experience, how do boundary considerations impact on the ability to apportion costs and benefits of infrastructure works?

What is the role of the political arm of government and elected representatives in influencing sustainable outcomes?

Probe Questions

Are there any other system considerations that impact on the effectiveness of decision making to incorporate broader sustainability considerations.

Reflections General Question What, if any, changes do you think should be made to ensure sustainability

is incorporated in investment decision making? Are there broader changes required across industry? Conclusion General Question Is there anything else that you would like to say about any of the things

we’ve covered today? Or anything else that might be relevant to this research?


272

Appendix E

Key Survey Results

Table E1

Kappa evaluations- evaluation techniques and sustainability

Table E2

Kappa evaluations- evaluation techniques and sustainability

Expert 1 Expert 2 Expert 3 Expert 4 Expert 5 Expert 6 Expert 7 i-CVI Kappa K*

Evaluation

Relevance of CBA x x x x .57 .41 Fair Relevance of MCA x x x x x .71 .66 Good Relevance of participation

x x x x x x x 1 1 Excellent

Relevance of LCA x x x x x x .86 .85 Excellent Relevance of ROA x x .14 0.09 Poor Relevance of sust initiatives


Relevance of ILM x x x x x x x 1 1 Excellent

Expert 1 Expert 2 Expert 3 Expert 4 Expert 5 Expert 6 Expert 7 i-CVI Kappa K*

Evaluation

Relevance of CBA x x x x .57 .41 Fair Relevance of MCA x x x x x .71 .66 Good Relevance of participation


Relevance of LCA x x x x x x .86 .85 Excellent Relevance of ROA x x .14 0.09 Poor Relevance of sust initiatives


Relevance of ILM x x x x x x x 1 1 Excellent


Appendix F

NVivo Tree Map showing coding weight associated with key themes

Benefitsassessment

Boundaries

Enviro...

Infras... Soc...

BusinessCase

Analysistechniques

Met...

Methods

Solu=on-...

Val...

Co...

Inte...

Corporategoals

DecisionMaking

Organisa=ona...

Poli=calcontext

Poli=cal...

Priori=sa...

Who...

Enablers

Consultantscapabi...

GovernanceRoleofRe...Training...

Implemen...

Pro...

Inputs

Asse...

Avo...Costes=ma=ona...

Cost

Del...

Risk

Interviewees

Par=cipa=on

Communityinput

colla...

Stakeholderinput

Policy

Planni...

Problems

Problem-... Probl...

Problem-sustainabi...

Solu=ons

Solu=... Sol...

Sustainability

Liveabi...

Sustainableoutcomes

Terminology

Tradeoffs

ValueCapture

Devel...

Environmentalvalue

Financialanalysis

Fundingandfin...

PublicValue

Socialvalue

274

Appendix G

Results: Selected responses on approaches to analysis

Can you describe the analysis processes that are typically used to identify and bring forward major project proposals?

INT- 1

Using a monetised approach in decision making is often self-defeating. When applied in practice, the engineers often use numerical judgements (like multiplying numbers to frame what is often a pre-conceived result) to make decisions without consideration that these are more often human calls.

INT- 2

Advanced cost benefit analysis helps quite a lot in that pursuit of optimum- you could use Multi-Criteria Analysis as well but I don’t like that as much because it’s harder to replicate – the weightings that people give various variables in an options comparison analysis- it is very peculiar to that group of people doing the assessment. If you monetise them in economic analysis then the substance is transparent and you can redo them if people think a value proposition is outside the range – it objective and repeatable- that said, you are greatly simplifying the complexity of economic decision making.

INT- 3 You then start looking at the incremental costs and the benefits of those options compared with BAU with a view to find the best community outcome, and then it starts getting a bit tougher- who are the beneficiaries of that and how are they going to pay.

INT- 4

I think, its partly lazy and its partly out of necessity, but every jurisdiction does have a preferred methodology for analysis. I think you can construct any outcome you want

INT- 5 The SET sought to provide a data base of values for inclusion in economic analysis (CBA)- there has not been much take up of this work- the most common feedback was that the values weren’t transferable.

INT- 6 A good economist has a rigorous framework. It shouldn't just be about measuring the measurable and then saying it falls down on the financial analysis therefore it shouldn’t pass.

INT- 7

The easiest way forward is to bring it in through monetising it, then being very careful about how you discuss the assumptions and show how sensitive they (dollars) are to the assumptions around monetising.

INT- 8 The BAU type business case is done on a NPV (Net Present Value) to (the business) with some discussion of qualitative benefits on top. In my work, I usually look at multiple stakeholders.

INT- 9 ..but either they don't do cost benefit analysis well enough, or, they don't understand where to assign those benefits and costs to all the people that they say they assigned to or they don't have the money..

INT- 10 We ended up to the point of recognizing that our multi-criteria assessment, for all its strengths, also has a very big Achilles heel being weakness. It's who's going to participate in your process, who's going to invest enough time to generally have a large interest in a certain area and they were skewered to their own views.

INT- 11 I can categorically say to you that economic models are part of a framework but only PART of a framework – there is no doubt of that.

INT- 12 if you back to what we did, which was to take a straight NPV, financial model, financial analysis of expected revenue, NPV, should we invest in this or not and so that’s was the straight NPV. And then what we did was to look at other value that we create, or costs and benefits that we should take into account instead of a straight NPV

INT- 13 So through that process, they try an monetise environmental and social, but where its not monetised they just go to MCA.. .. we have the same problem with the social and liveability things using cost benefit analysis as well. Because it further away, if you can’t quantify it financially, … its harder.


Appendix H

Results: Selected responses on approaches to Decision Making

Can you describe the decision making process that leads to the approval of projects (from option analysis to implementation).

INT- 1

There are bright people who are into the power thing and understand how to manipulate the process to get the outcome they want. However, there are only a limited amount of people with the power and the influence and ability to make it happen.

INT- 2

the environmental regulator is EPA- they insist that engagement happen-they often won’t accept final environmental documentation unless there is evidence of engagement. EPA encourages proponents to get majority community support before they submit their projects.

INT- 3 We then have to argue with the regulator that it is robust, or say that it is a community obligation. And so if there is a clear obligation imposed on us by government, then the regulator looks for cost efficiency- have you got the most efficient way of achieving that outcome as opposed to any other approach

INT- 4

Australia has under-invested in infrastructure. A lot of projects come about by critical need and they need to be championed- whether a bureaucrat or politician. That makes many major investments very political.

INT- 5 Community’s input is required in setting priorities- this is often done in workshops that are mandated as part of pricing submissions.

INT- 6 Community participation is critical. ... If you consult, you figure out what is important, and either design it away, or pay compensation or another way of factoring it in. Whereas the flip side is that BAU you put a value on it.

INT- 7

After writing it, you see the politics or bureaucratic process play out. Sometimes it grinds to a halt or gets trump-carded. The politics comes in and can overturn…the last ten years has seen quite a bit of change.

INT- 8 And the Board and the Execs are still struggling with that because the whole thing that that the development is generating value for the business was actually being taken out of the analysis in the business case.

INT- 9 Well, I think Treasury has a role to prioritise to look at the merits of different projects.

INT- 10 It is getting more tighter now because we actually will have to price determination that is very specific on outcomes and output and we will have to deliver that. We won't be able to deviate from that. That will have a tighter framework on how we make our decisions.

INT- 11 So they could hear and take it into their decision taking- so the boards were very good about that. …

INT- 12 We started from a principle point of view, we don’t want to cost shift , we want to make sure that we make the right decision that takes account of the environmental impacts. So it wasn’t to justify projects, it was to make sure we were making the right decision in total. So where you get to with, we have come up in principle but not in practice an economic regulation regime that goes back to a financial view of the world,

INT- 13 going back to the thinking within the bounds of our organisation how do we justify that with the regulator so at the moment,

276

Appendix I

Results: Selected responses on definitions of sustainability

How would you define sustainability?

INT- 1

I see two contexts of sustainability. In a water business context, sustainability has to be across the board. It has to be commercial sustainability, environmental sustainability and community sustainability – at least those three- and they have to be in sync. You have to make those trade off discussions- this is one of the things that we struggle with, is the trade off stuff. When people get locked in to one particular aspect, they can't understand, the reality is for everything, there are trade offs.

INT- 2

I have a pragmatic view of how sustainability should be framed and applied in organisations and it needs to be practical and pragmatic to works with time frames and capacity of organisations to deal with it. At the higher level, measuring progress towards sustainability can be done through the ecological footprint work as a performance measure. There isn’t such a thing as absolute sustainability- the planet is changing all the time one day the planet will snuff out- in the short term, there is no single solution but need to look at maximizing the positive values of technical social environmental and financial elements of a choice between options to deal with a particular problem is the best way forward.

INT- 3 I struggle with the word “Sustainability… its about economics, customer, efficiency, its about the environment.

INT- 4

The environmental outcomes almost follow on from the financial outcomes- I know it’s not a popular opinion- if sustainability and doing good by the environment was easy or popular, we would have solved the problems that still exist.

INT- 5 It’s about ensuring there is intergenerational equity so that the things we do in running a business or running a water utility, we preserve the environment- basically we leave the resources and environment in a better place for future generations- it’s about how we leave things for future generations for me.

INT- 6 ..the decisions and investments and resources we used today don't preclude future generations from having the same level of access to those resources and those resources. I think there is a strong sustainability drive within the water industry

INT- 7

I come across people’s interpretation of sustainability which is dark green- environmental focus. I think sustainability is more complex and means taking into account environmental, social and economic elements but they are not trump cards.

INT- 8 My perspective of sustainability is where we are looking at solutions with minimal impact to deliver value to the community- that may be about enhancing of liveability, enhancing of environment of which water is a very small part of.

INT- 9 It waxed and waned…so with the sustainable development goals. So sustainability might have dropped off but sustainable development is back (in).

INT- 10 And so not only is the science there, but collectively as a planet through the United Nations Environmental ... UNEP, we have sustainable goals and then compact for the business, it's been measured on country scales and we see Australia's results…It's just suddenly seeing that all these things, it's not outside of normal business. It's linked to our purpose so we showed all that connectivity, so yes, it's linked to that.

INT- 11 N/A INT- 12 I’d like to think we are in the industry.. at the forefront of that recognising the problem

and thinking. I think that’s ultimate problem with sustainability- who shares the cost. INT- 13 so I see sustainability being aligned to triple bottom line, so across environmental,

social and economic side of things but often .. it is skewed towards the environmental...


Appendix J

Explanatory results table: participation

Theme Supporting Respondent Quotes

Defining the Community: Where the community doesn’t exist

So Councils… they have water efficiency policies, sustainability policies so representing the community perspective, so the planners who are planning those communities- in this case the government and two councils about what they aspire to for that community- so they are looking for a six star, green star community. A more sustainable, thriving diverse community- I thinks that’s in the vision a key issue with engaging with the community is “who is it”- they are not there yet.

Understanding community values

Yes it is also a valuable technique for holding dialogue with stakeholders at the scoping stage. For example, we have to solve the under capacity of the wastewater issue for a town, you can actually involve the community of people who care about that thing by firstly identifying what is important to those stakeholders, ie the social and environmental variables as well as the conventional cost and technical elements and also get people to propose what the range of values should be. Ultimately, we have come to the position that we as an organisation are here to serve the community. If we do that and partner with our customer groups then that’s how we do it. .. The other issue for us is that a particular person can be a different type of customer at any point of time. They can be some one is doing a development on their house so they go through our development line- development services. They can also be someone who on the weekend goes to the creek so they are a different customer then. So at the highest level, everyone is a customer. If we want to think about the particular services that we deliver, we might think about them in different segments about how we interact with them. Because we have a direct customer for some of our services, the general public or anyone in Melbourne is a customer. …. So yes they are a customer, but they are also a partner to provide a service to the community. it is still very much customer driven rather than community driven. And regulators, just like we all do, struggle with how we quantify these amounts, not only the environmental stuff but how do you quantify the customer’s or community’s willingness to pay. What those studies show is that yes, you can get willingness to pay but WTP is different to whether I am happy to put my, at the time am I physically going to pay. And there is a big gap between the two and so we all struggle with “is that right?” we said water utilities need to open themselves up and have conversations with key stakeholders – treasuries, government agencies, the ministry to look at what climate change threats – how much are people willing to pay- so it is a more broad based decision rather than an

278

internal one- I am not sure if the water industry is emotionally mature enough to do this. the Board was thinking about impacts to the community- there was no doubt they were thinking about employment in the community- we had some major employers in the community.. I think in local communities, they are very tuned to their local community anyway- the boards could not just make economic decisions alone and they were very conscious of their pricing impacts so economics was important. What we find is when we do that customer engagement and talk about renewables and sustainability, they say yes its important but we don’t want to pay any extra for it. That’s generalising, but a lot of the utilities ask that in their engagement and that’s what comes back. They just want them to do it. My honest opinion is to get it in there through government policy and regulation obviously, but you can’t put it in policy and regulation unless the community want it as well. So everything comes down to that customer and community group. So if you have data, and engagement and they see that its important.. Community participation is critical. I don't mind liveability even though it is another buzzword. Liveability I think is sustainability plus the views of the community and I like the community because we can deliver things that are grey, but somebody has got to want them so there's got to be value there somewhere. we talk with them about what is important to them- is sustainability, is liveability, what do they think about carbon, so we try and get a picture of where their values are and how does that drive our outcomes, our operating programs- every five years. This is absolutely critical to our water plan pricing submission

Working with ther community- community education

one of the the inputs into our spreadsheet was one of how much does the community support it? How much do other people pay? So, yes, it has to be totally with the community If you work with the stakeholders, both internal and external, you get much better social outcomes because people understand the logic and they understand the financial limits of what you are able to spend on something. Working out what the community's role in the project is particularly important- that you decide what it is.. Qld Main Roads were not very good at this a while back when they allowed the community to decide where the road went- not a good idea as you split the community between those who are advantaged and disadvantaged by the solution. You need to have a robust way of assessing how to best benefit the community or least disadvantage them as a whole- a third party needs to make those decisions. The way to involve the community is in mitigation and it must be clear what the range is that you are giving them permission to decide things. It's a managed process There was then a long period of social engagement that brought the community around but it took 18 months. People were not fully happy but they found through good consultation and transparency that many of their fears would not be realized.


For people who see these things as negatively affecting their lives and amenity, there is no choice but to take your time and properly engaging with the community- if you fail to get approval. When we major capital projects, well we have learnt over time that you have to get the community on board with whatever you are doing and show that you have considered their views. At that level, we are absolutely committed to it and it works really. At the end of the day, the community have been involved- they got the right group, the right community sampling, the right level of engagement so that by the time they came to building (it), it was a non-event. It started early enough and managed their expectations. Through a series of consultative processes (starting with examples of community anger which was a disaster), but this set them up well… Community engagement may be done professional PR companies- that’s not engagement When they do it well they put out their draft approach, they will say what is their potential approach and the costs. The consultation can completely change their mind, or identify something that they haven’t taken into account, or that this is a small thing or a big thing, and so that happened with the heavy vehicale programme where they found halfway point between point between two options- it was a best of both worlds approach based on how the consultation guided them. Its not a lip service thing. The first round of consultation is very important to understand people’s views To take that example and put it into a capital works project. We have learnt that you can’t just go ahead where you have to negotiate with the community about what is acceptable and what is not- can you live with this outcome. And I think water utilities could make far more use of voluntary expertise that is out there in the community by being more transparent and more consultative. There would have to be consistent transparent ethical behaviour and that waxes and wanes. This is project advisory groups or the like for things like desal plants- they may be attached to the project for 12/18 months. This was used in the Gold Coast Water Futures- debating issues, educating people , they can ask questions, have answers and debate the outcomes.

Engagement processes/ models

Yeah, so we are increasingly trying to think about different methods. There’s the whole project around how we could broaden and strengthen our ability to engage and bringing a stronger level of engagement up the value chain. So a lot of our engagement at the moment is done around a particular project and how its going to impact you as a community member and some of the work we are doing in the strategy is how we can get the community involved further up the process and we think about the projects and the planning, or if and how and to what extent we can involve them as sometimes there are very specific technical things we have to do around a retarding basis for instance but we might still be able to involve them in the re-establishment of the site and what that looks like- for them the amenity and social value that they can get out of that.

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I think it (referenda) is an interesting model. I would be interested in what the base level of understanding is by the constituency. The idea is putting something out to the people , there would be difficulties in implementation given the complexity of projects. I like the model as it would increase the level of public debate, but I don’t like the idea (as an industry professional,I have an interest) there are real issues of equity. It would be easier to do it in somewhere like Zurich as it is more homogenous- and that is something that Europe has going for it. European cities are so long established and have long term communities and so are relatively homogenous. Maybe you could put that to a referendum here but I don’t know how you could invest in any projects here in Australia equitably. I have been watching has been Yarra Valley and their citizens jury for their pricing submission because we have co-design things going on with particular strategies but their approach to writing up the pricing submission. So there are pockets where we are watching people who experiment and try and hopefully share the learnings. In valuation the customer engagement customer and community engagement - probably piloting some of these wider things just because it had to even see the value or to describe the value maybe you've just got to do some pilots. You don’t have to pretend to do the economic. You just say this is what can be done, you do it and in the end people see the results and then you can ask them do you want some of that. And they say hey yeah whatever that's great. they ask questions about what is important to them and what a water utility needs to part of- that’s where they get that I think the water utility needs to be part of the community or environmental needs- and if that becomes an important thing for customers they might dive into that a bit deeper and find out what aspects they should be doing- for example in South Australia that whole concept of reuse is important so recycling became a massive thing for water utilities –so much so that the customers were willing to pay quite a lot of money as part of the engagement to have recycled water- and that’s part of that concept of having reuse and sustainability and also where the nitrogen goes out to the Gulf in South Australia So what we expect out of the citizens jury is that they prioritise…But on an ongoing basis, we will go back to using a customer advisory group rather than a citizens jury… .. The only thing we say is we need an answer on what is the priority service levels they want, what is the rebates- so we have said to the consultants you have to get these answers out of them but beyond that, how they answer it is completely beyond our control. Which is frightening but interesting at the same time. We have two people permanently on staff who deal solely with the community on projects. They wheel out the engineers as well, but absolutely and that’s through harsh experience. .. And that’s not a skill that an economist or engineer has naturally, some people can.. Everyone is saying recycling is a good thing to do and we should be doing more of it, here’s the example, but it’s the classic NIMBY – I don’t want recycling if it impacts on my backyard, because it will smell…So we are trying to get four people from the community to sit on an expert panel, not as experts but to represent the community, notable people who would come with a different point of view so again it’s recognising that you can’t go ahead without a certain level of community support. It’s not a financial thing- there’s the business case sitting over there- it’s a


pragmatic thing and in fact the business case may be negative but that’s not the problem- the problem is getting the community to support it. At that level, that’s where we are at- back it the day of Metropolitan Board of Works, it would have just gone through.

Benefits of participation

so there’s definitely people who interact, who feel affinity with the land that get involved. In terms of general engagement with customers on general projects up-front.. on our reputation survey we get a fairly high scoring on environmental stewardship. There’s a general sense in the community that we would do the right thing And when we haven’t engaged, it has gone astray. We have plenty of examples where we have made a decision that we have put up saying well we are the technical experts therefore this is how its going to be done and we will tell you what the results are. And it just goes, people just start writing to the minister. And then you get this big community outrage and then you to have to back-track and change plans and then spend more money and I think as a business we are still struggling in understanding the business case. We understand that it is probably a greater benefit to the business to spend money and time in engagement up front in the process- how much is that worth in dollar terms in not stuffing up and having to go back and change your design somewhere along the line and do works that you never planned to do. If you consult, you figure out what is important, and either design it away, or pay compensation or another way of factoring it in. Whereas the flip side is that in BAU you put a value on it. The alternative, more likely, you re-route things At the moment we can't build projects because people and community are saying no, we don't like them. We don't want you to build in my backyard. I think this is actually going to be an enabler to give get a solution of some form.

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Appendix K

Results: Selected responses on the impacts of boundaries

In your experience, how do boundary considerations impact on the ability to apportion costs and benefits of infrastructure works?

INT- 1

Most people work within their boundaries. It is not routine for people to think outside boundaries….As a reviewer of business cases, I often see that the analysis does not look broadly enough or deeply enough.

INT- 2

Another aspect of boundaries is boundary of the business- what’s our business and what’s not.

INT- 3 That’s really by a shared vision, understanding to work together… So for me the value of having a shared vision and going back to what I said before- understanding the need for trade-offs between authorities, or understanding my commitment to pay is front and centre and we have all agreed on this particular outcome.

INT- 4

The wider public/ community benefits (eg downstream water improvements) are incidental.

INT- 5 The role of the regulators is problematic – communities may value certain things that utilities manage/ provide (an example is recreational facilities on water storages), but regulators would not necessarily support utilities funding works on non-core activities. The Boards can also be problematic- they often just want the cheapest option.

INT- 6 What’s the boundary of things we should just unilaterally do and what should we can leave. We can lead by doing some pilots but we can also lead by trying to convince government yet that it's a good idea. But its up to government to reflect - the water plan may be a really good idea.

INT- 7

Those boundaries will often determine where you have a significant effect you have to do something to quantify or you know you there will be a spillover effect and you have to make a discussion. When you have those issues you always have to discuss, even qualitatively what might spill over a boundary and whether its important or not.

INT- 8 if we took our mandate, we should only be looking at water and sewage. We are willing to go beyond those boundaries. … Other water utilities aren’t comfortable with going outside their paradigm- … It’s a level of maturity..

INT- 9 You do work upstream and then people benefit downstream …

INT- 10 Then it was the recognition that on a global scale there's limits to growth and we use the concept of planetary boundaries concept. Well, that's on a global scale. Well, how does it come down to a local scale? How does it come down to a business scale?

INT- 11 So the Boards were very conscious of the whole community economics not just the economics of the Board.

INT- 12 In the end it’s this issue of in the real world you have to negotiate and that’s what the industry is not really good at.

INT- 13 that’s where IWM has extra complexity as everyone can plan to their heart’s content but when the rubber hits the road to invest, no one has got a way to work around the different boundaries and finances of different organisations whether its councils or government because often people putting up the cash are not the ones who necessarily benefit


Appendix L

Results: Selected responses on policy and organisation goals

What is the role of policy and organisation goals in the decision making process? INT-1

Some organisations articulate their goals quite well. There is a significant difference between state government owned organisations and local government owned. State owned organisations have the luxury of being able to define their goals- sustainability being one of them, themselves. Local government businesses are one notch down from the council’s direction and then there is an enormous degree of variability as to how they develop their goals- including sustainability.

INT-2

..to get thinking and decision making to align with that is critically dependant on the dominant culture of the organization, and having the right people in the right place at the right time. Management systems are not enough..

INT-3 There might be conscious corporate strategy- eg there might be renewables or look at GHG emissions- so across everything that we do, how can we do something?

INT-4

And so the benefits seen by investors or the community are not necessarily the ones that were explored in the business case. It’s a two way street- all of the players have to work together.

INT-5 to get it in there through government policy and regulation obviously, but you can’t put it in policy and regulation unless the community want it as well. So everything comes down to that customer and community group. So if you have data, and engagement and they see that its important..

INT-6 we need clear directions and planning from government and strategies that work-that say as the elected representative, we think action in this area is a good idea and that utilities should be actively looking at this and that's our desire to see more of this and utilities are evolving

INT-7

The politics comes in and can overturn…the last ten years has seen quite a bit of change. (Going back,) the departments would put up good ideas to Ministers to consider, and it seems to have turned on its head- now ministers have ideas and departments implement them

INT-8 Well, Water for Victoria is saying that you have to work better. They have brought into that and they expect the water industry to do that. But haven’t actually set up the tools to enable us to do it. They are trying to come in with decision frameworks to empower people to take it on- the cultural change is up to the businesses….you turn your strategy into a concrete target that you can measure yourself against- that worked really well in the early recycled days.

INT-9 Water for Victoria talks about family violence, that is a centre piece for government. So, what is the role of the water sector in addressing that? Around hardship and how water retailers recover money when people can't afford to pay their bills or it's making sure that you have work place policies within the water corporation and catchment management authorities that have family violence leave . So they do cascade down and implement them in different ways depending on the sector.

INT-10 Well, that's on a global scale. Well, how does it come down to a local scale? How does it come down to a business scale?

INT-11 They would always remember their base charter and they would always remember their five year plan as well. So, they have to balance that.

INT-12 that is the over-riding scene setter for a government owned water utility. What it makes it easy- and I don’t necessarily endorse this- is where they put it in some legislation and statement of obligations. Whatever. Like you will put in an environmental pledge what you are going to do in the environment- like our greenhouse gas targets by 2020/2030

INT-13 But then in Water for Victoria you have references to Liveable Cities and things, and so Water for Victoria started to push water authorities to that way of thinking.

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Appendix M

Explanatory results table: enablers

Topic Supporting Respondent Quotes Leadership & Organisational factors

“so when he took over as MD, one of the first things he did was, "Okay, we're going to work out what sustainability means and we're going to measure it and how we're going to implement it." but I think in terms of the change, it does drive the need for leadership, that champion to be brave, to put something out there and have a go and be prepared to fail. And I think as water authorities, and this is true for a lot of traditional infrastructure organisations, that ability to fail fast and furious and to take more risk, so that tension that we can’t take risk because we have public health at stake, and yet we need to take risk to do things differently what we have done has been driven not by boards but by management .. who had a vision about this and the Board bought into it as well Leadership will take it this far so that the company is thinking about it and being able to when it is not material in an overall cost basis to get away with it What I have seen is one player -a water utility taking the lead saying this is the solution I am meant to do according to my environmental regulator or economic regulator, but I think I can get a better outcome if I take this other solution then its up to them if it costs more to go to the other parties and negotiate a cost share – but no one likes doing that- its too much effort to do it- the only incentive to do it is when it costs a lot less.

Organisational factors It is a partnership. Where we are at the moment, I think utilities and councils are often partners and I think one of the impediments is ability of council and utility to split responsibility in a sense- it's not exclusively your job is not exclusively our job- I think that is an impediment to good outcomes. Let's build bridges and institutions to allow that. You've got something like a Greater Sydney Commission in Sydney that that's one way of doing that or there are other way So we we are over here, but for those companies what’s their mandate- is it just to maximise the profits and meet government regulation or is it something more so I think that ultimately what’s probably happened in the restructure is that they have kept their old networks under the siloed one and they have formed new ones under the people who provide different technical expertise and that has probably strengthened the organisation- yes that was a rough patch but it has probably strengthened it as this is a different type of network and people were like- its based on relationships right- people are staying within their relationship network but they have kept those old ones and have built new ones. But I think people genuinely do- there are definitely technical experts that stand out- that people go to and defer to. However, to get thinking and decision making to align with that is critically dependant on the dominant culture of the organization,


Capability and skills And then you have a group of enabling people behind you who work through all the details, complexities, of how to make it happen, deal with the challenges and roadblocks…but the business has to work out how to do it. And its often where strategies fall down- yeah we have this strategy, its all approved, it been costed, but then you get into the implementation phase and you get a whole lot of people who don’t want to do it. Or they don’t know how to- it’s a bit harder to do. There has been an appalling expertise loss- decision making is getting worse…Organisations in such a complex business gets rid of its coprporate knowledge at own peril. My suggested remedy to that is to broaden the base of knowledge and expertise by mentoring young people into these approaches and developing them. The point is to have the intellectual discussions as a base- in fact the technique is the least important part- it is how to think about problems and how to be ethical about what is important or not- and don’t cut corners. However, to get thinking and decision making to align with that is critically dependant on the dominant culture of the organization, and having the right people in the right place at the right time. Management systems are not enough/ techniques . This requires social insight, negotiating skills, broad environmental knowledge and other knowledge- eg knowledge of social options other than infrastructure… If just engineers wanting to build stuff, you get the same result again and again. The reason people with a technical background struggle with that is that they can’t deal with subjectivity well. So when you start transferring all these values – the values are subjective- they are about you. You can’t deliver anything without people. .. You had to make something from what you were given with the resources available. I have also have learnt from making mistakes. From all that, one of the key things for engineers is to understand when they don’t know something and they need to be comfortable in going to ask for help. The greatest library for an engineer is the people in the room. And that’s where you gain an understanding of the qualitative issues. They are not going to say the answer is 23- they will tell you why, the qualitative and subjective assessments. No one is going to teach how to do a job by filling in a spreadsheet. So when I came to the team, it had been viewed as a technical project about water recovery and we couldn’t as an organisation switch to the opportunity that might be provided.. so it did take someone to go, this isn’t just a water project, we have to think more broadly.. Capability is very important in being able to negotiate and achieve outcomes identified in the business case. One thing regionals do is to stay in touch with their community- it is not going to be your analysts that say yes or no (for projects). The executive should be onside or not and oif they are a progressive executive they will be in touch with their community and say we need we need to really investigate this.. We need to burrow in rather than expecting there be in-house expertise and they’ll get this fully formed business case with everything costed. So I think it will always start at the top in a way and it's mostly I think regionals are in touch with the community. I think consultants can help if an organization is intellectually capable of using them and if the right people are appointed. Its up to consultants to find their role and for the client to agree. Some organisations need assistance. The consultancy community need to help the client understand what sustainability means to them. A good project manager tells the client what they need to know- not what they are asked to tell them. Some clients haven't thought of these things. I believe as a consultant I am there to provide counsel- not what you have been told to do. (But, I am different to many

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consultants in approach). People wont take us on just to get something done. We will only take on jobs where we know we will add value. Go you can get a consultant to have a look at it. If a government expresses a support it will makes resources available. The water industry isn’t a small industry projects I think there's a will there I think the skills can follow. It doesn't have to all be held in house because if you say they're out they're out economists or consultants some economists that specialize in finding out what those the values might be either through engagement or measurement tools or various techniques. The other challenge is to get unbiased experts to prepare the material in a certain way – the water utility is not necessarily involved- they get an external party to do it- that could be to with things like dredging… the most difficult thing is getting a customer to understand what is done to run a water utility- you need to prepare plans, these are the things you need to think about – environmental requirements, - most people don’t think about that.


Appendix N

Explanatory results table: inputs

Topic Supporting Respondent Quotes

Costs and Funding Models

Once I have done that, then I embark on what is the cost of everything, and value the things we see and try and build a whole- of –community costed business case separate from who owns it The other part that I go through is that I always compare that to Business As Usual and actively challenging what the real BAU is, because often there are often a bunch of hidden future costs that are not being counted. Its one of the reasons I started the Avoided Costs Project- which was ok, if Melbourne is going to be 8 million in 2050, we have a system that is designed for 3.5/ 4 million people. So if you ask “what is the future cost?”, Melbourne Water spends $200million a year, and has for the last ten years on drainage augmentation, and they have $2billion worth of backlog- just on existing problems. And we estimated there was a further $6 billion, as a consequence for them and another $3-4 billion for councils. And that is a real weakness in our business case because we can’t see the future avoidable costs that our alternative solution would mitigate. We talk about it a bit but we don’t do it. .. long term planning isn’t being done- because we are being driven by a regulatory period. The maximum outlook is five to ten years We have all these models, we have a long term population projection- lets lay it on, look at it, see where it falls over, do a quick cut of the costs that you are eventually going to do that gives you a basis to start your business casing, it also gives a basis to drive your thinking. And get it separated from the regulatory pricing games- which are five to ten years. This is the ten years plus…so we are starting to see that happen, but there is still a lot of “head in the sand” thinking- like well I can avoid this in this pricing period. Ultimately we are going to hit some major constraints where you can’t just keep deferring. And any of the works that are part of the regime of progressive avoidance really need to have been started twenty years prior. It’s the 20 year plus stuff that you really want to identify and the problem is the government discount rates kill you in a business case sense- anything over ten years is so discounted where in fact the real cost of those works is about CPI or for some you would even think about a negative discount rate. and they would make assumptions about the asset life and operating cost and the capital cost and they just wanted numbers for that which is completely insane as there is no chance of predicting the whole of life asset cost over 35/ 50 years. I reviewed their capital works program and identified that it could be halved based on the costs allocated to some projects- you can't do that without content knowledge And so if there is a clear obligation imposed on us by government, then the regulator looks for cost efficiency but I don’t think in sewage backlog the benefit outweighs the cost. The costs outweigh the benefit. But it is government policy, the decision has been around for 20 years

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they want to know what’s the least cost because it usually comes down to finding efficiency One of things we haven't covered here is funding. So you and you can identify in a business case- if you do it well. Say if you take recycled water schemes may defer the need for capital elsewhere in your network. Yet so by really doing your recycled water scheme you may avoid a treatment plant upgrade that you knew you going to have to in ten years time. And that treatment plant might be worth a hundred million dollars. But nobody's given you that hundred million dollars for the treatment plant. So you cost that into your business case. This has got a value, say of five million dollars a year and it gets a business case over the line. You need an actual mechanism to monetize that saving because that saving is ten years in the future. It’s like when you say if I get a motorbike we might not have to buy that a fifty thousand dollars car in two years' time- but you don't have that fifty thousand dollars. That's so that that future price rises or future value come in. So there's got to be a mechanism for that. You've got to that's when the regulator comes in and they're going to some price rises today. (This forms part of the five year planning horizon). There is still work to do in funding intangibles because because they don't necessarily plan themselves. And that's where going to the regulator - that's where that sort of friction could come in. Measuring something accurately doesn't mean it's going to fund itself. Even where it's purely rational even though even by doing something today deferring something in ten years' time, that hundred million dollars for the treatment plant isn't in your prices yet. Nobody's paying for that treatment plant so you've got to actually find a mechanism to pay an extra five million dollars now to save that hundred million dollars So that is a mechanistic way of doing Nobody's arguing is not a good idea but you need the funding mechanisms to actually get you that revenue. You've got to have a mechanism for actually funding deferred and avoided capital costs today because they're not in yet- they don't magically appear. Because you didn't build it means, doesn't actually mean the cost was never there. So that’s when you need to go to the regulator and they've got to recognise that you would have had to do that. Then they may be able to allow you to put up prices today knowing we are going to be better off. These things don’t fund themselves.. Well they still there's probably a little bit of work waiting a little bit of a way to get there. it needs to consider how do we actually fund this thing as it doesn't and doesn't always funded self and that's we've also got a back to the get more creative pricing solutions where rather than everybody pays exactly the same. We know the community values it, know they're prepared to pay so lets charge that group that suburb another ten dollars but we can't really do that yet. These is sorts of mechanisms- should we be charging developors the should we be having a higher rate should be having all those sorts of funding mechanisms need to be ironed out to support the sort of the underlying business case. you need to bring it back to the dollars and cents- because that’s how other people understand it

Risk So we had to do further into the ideas and mechanisms. So for our water resource plans, we had to conduct big risk assessments. We did risk assessments all the time and really it's the first time that we considered aboriginal values as a use of water. Some people just see environmental uses. And then that formed part of the risk assessment. Now everything in that risk assessment with regard to Aboriginal values came out as high risk, because we don't understand them. They present the plans to us and talk about the risk but its not just risk its what is happening like the works and developments and things like that, so there are always adjustments to priorities every year done I’m just playing devil’s advocate on how politicians work and how they react and work and how risk averse are politicians


One of the risks is double counting I’ve seen business cases They have also got a fundamental role in the financial viability of the business, and inherent risks, so they should be taking a look at what are the engineering solutions, what’s in the business case, what are the risks…sometimes the board has required a rework/ start again on projects to take more risk, so that tension that we can’t take risk because we have public health at stake, and yet we need to take risk to do things differently- that tension is really prevalent in some of those decision making processes as ultimately you can put the card on the table, and say you are risking an outbreak of whatever, and that can dampen something that is innovative and new One example was that a while ago some consultants showed you could get better outcomes form PPPs as it shifted the apportionment of risk Often in environmental risk assessment you can see that a (say) orange bellied parrot can be a trump card and I don’t think that’s a sustainable policy either. So to be able to bring congestion costs in or the risk of death or things like that- the easiest way forward is to bring it in through monetizing it, then being very careful about how you discuss the assumptions and show how sensitive they (dollars) are to the assumptions around monetising (they) went back to the EPA and said if we have a risk based approach to managing wet water overflows, we can achieve this for $500m rather than $5b and then we can keep on going This same approach (using numerical factors) is used in risk assessment. Risk assessments often involve putting numbers in boxes to rank from low to extreme It is forgotten that this is a construct- but the numbers often take precedence to rank risks. People with an engineering or accounting background just can’t help themselves. So I’ve seen a number of projects where people start ranking projects based on whether they got 23 or 24- come on…Because the calls are so subjective. I see risk rankings as important - you get an automatic value assumption…I try to get clients to use the business risk ranking for anything they do What’s a far more critical disruptor to a functioning utility is the loss of critical support services- electricity, road access and in the case of treatment plants chemical delivery ie the transport access. In many cases, the past does not predict the future and so you need a probability risk analysis/ you have to do a thorough scenario analyses of your business vulnerability as well as the vulnerability of your key suppliers and assess how sensitive your business operations are to various disruptions. Often it’s that stakeholder- one stakeholder- who wants to takes the risk – we talk about who takes the risk. You work out the system, here’s the best community cost, ok you are the proponent, you take all the risk. I have no control over the catchment, I will put in some more engineering and the costs blow out. (41.55) The allocation of risk and the willingness to take risk is a real challenge especially in the water industry and no one wants the risk and they try and push it on to every one else. The bunny at the bottom ends up with all the risk, so ok what are you going to do. Well, I’ll build engineering solutions and they cost you more and they blow out your business case.

Delivery Capability

And its often where strategies fall down- yeah we have this strategy, its all approved, it been costed, but then you get into the implementation phase and you get a whole lot of people who don’t want to do it. Or they don’t know how to- it’s a

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bit harder to do. (“Well I really don’t have to do it”). The water industry is really good at finding reasons not to do something unless you are continuing to drive it, it won’t.

Asset management

I think, material but also environmental amenity and in a very wide ranging sense so we don't want to be running down our environmental assets, our financial assets, our social assets, so we want to be maintaining if we can each of those so what I'm probably bringing in is that there is a financial and material component along with the social and environmental. And its also about managing your assets around climate change or changing world or NGERS. A lifecycle view is most useful, the useful life of the asset or the relevant timescale as the key measure. and they would make assumptions about the asset life and operating cost and the capital cost and they just wanted numbers for that which is completely insane as there is no chance of predicting the whole of life asset coast over 35/ 50 years.


Appendix O

Explanatory results table: benefit assessment

Benefits assessment

Supporting Respondent Quotes

Approaches – translating organisational aspirations to benefits

One thing I will pull out is the Investment Logic mapping here in Victoria is good in setting up your project KPIs. It tells you up front before you start crunching the numbers what’s in and what’s out. So as an example, the ACT Light Rail- again I’m an independent observer and not involved- you do all the analysis and you come up with a BCR of (say) 0.6. So then you say, how do I get it up to one- so you find some environmental outcomes. It wasn’t set up as an environmental project in the first place, if it was, then you would have investigated those variables. So for that reason, the ILM is incredibly valuable in setting up the indicators/ performance requirements of the project and then you are in a whole other space after when you have to evaluate it. Sometimes in NSW, we were pulling together the project KPIs after the CBA was done. Some of the things we are working with as part of the development of integrated water is what’s the value proposition that water brings to the community and supporting the green landscape and providing urban cooling- which aren’t direct measureable benefits and its one of the things we struggle with in trying to talk through these things and develop business cases as internally business cases are about what does it save us in the delivery cost of water . One of the things from our greenhouse strategy that I proposed was if the Board makes a decision that we want to achieve this much reduction and value it at that say $200 per tonne, then that sets a benchmark that I can achieve for the next five years- if I can come up with a project that is less than that then I have a viable business case. So you turn your strategy into a concrete target that you can measure yourself against- that worked really well in the early recycled days. So, that's spilled over in terms of if we're doing something for environmental benefit, and let's say a recycling plant, the community may agree to the environmental objectives, but they may not want it built near their place, so like the art on the freeway. That actually crosses multiple domains of value creation and so the integrated profit and loss account allowed us to go down to that depth. so we have a vulnerability program, we have an education program where we go to schools providing drinking water, teaching kids about the role of water. When we build our treatment plants, they can be built differently. When they get into their business case development, you then, there is a need to translate what the value set is now. This is important as the values sets change and the value proposition changes- s an example, desal (desalination) had a particular value equation that had existed when the council had set it up. When it was taken over by the state, it had a different value proposition- so the KPIs changed, a whole lot of things changed- you need to make sure that the project stays in touch with the value proposition What we learnt when the water industries were restructured, the projects that they were delivering changed- clients changed - needed to go back and re-tap into their value set. There can be a change in personnel- senior managers do their own interpretation of the value proposition, and commonly do for their own benefit. Also, there can also be a contextual change (eg drought). Change can come from

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a whole range of areas- context, ownership of entities (client side or provider) , personnel, people. You need to be aware of the changes and go back and check. This has to follow the value proposition- for example, if a key community sustainability consideration is unemployment, then this needs to translate into the types of contracts that are let. What does it mean for the people I employ- that is an interesting discussion I have had with a number of clients to find out what that reality is- many are wedded to the high level goal but many aren’t so much into the detail I think every state looks at that differently- from my experience. Some are better than others- I think Victoria is the best state because, in their planning and development, they have bring all the players together. And they look at the least cost to the community overall and they develop an affordable cost based on that. But that kind of planning doesn’t happen as far as I know in NSW, or any other state for that matter, unless one of the players takes a lead and decides to bring everyone together. SO that’s what I see as one of the problems- no one is …there is no rules or regulations or process around this. And there is no incentive to look at the greater good because everyone is looking for the least possible for their own area. Whoever gets in first- usually the government makes that decision. I see that it being done differently in each state.

Aspects of Community Benefits

Yeah, exactly, so what are the things that you can do to actually bring people in? Ultimately, the Western Treatment Plant has the second highest density of bird life next to Kakadu, so there is actually value there, but how do you capitalize that value? A buzz word I think, if there is one now, is livability and so we've been prompted by what is our role and what's the magnitude of it? Is it big? What's our role? How do we measure it and should we be doing anything different next year? And it's just suddenly realizing that actually this social domain can be measured in some sense of materiality. We can get different outcomes if we actually reframe our objectives along that line. I've taken the business along the lines of health and wellbeing under the umbrella of livability and in our strategic language is thriving communities our relationship with communities, I've said, "Look, health and wellbeing in outside ... While there's a lot of debate and a lot of literature in the water industry, in the health industry it actually is measured. Health is measured in terms of longevity, how long you live, and wellbeing is measured by your quality of life. Then we looked at the variation of that across municipal areas and what's avoidable and what's not and then sort of came back to say that the determinants of health and wellbeing are… Well, firstly, the number of deaths, 1,500 a year is avoidable is highly correlatable to a hundred years ago when the water industry was set up and that was set up because we had 400 deaths in a year in Melbourne because of typhoid and people [inaudible 00:28:37] were avoidable by simply building the sewers, so we're then saying the challenge is facing a quality of life and livability in the state quite high. If someone was to look back in a hundred years time and suddenly see well you got 1,500 avoidable deaths ... If we can help those people, we're helping ourselves, we're helping health and wellbeing, because ultimately that contributes to the end quality of life, so it's suddenly saying what is our interface with what we do in terms of water industry provision, but all those things that actually impact socioeconomic behavior, behavioral change, so that's drinking water, because we're drinking too much, as a society, too much sugared ugly water, so what role do we have there and what's the value? How does that compare to the vulnerability?


We're beautifying assets as well, so we've got a few of those on the go. We're using community art. We've restructured, actually, to address I guess our role in terms of Aboriginal communities. We've signed up a RAP, a Reconciliation Action Plan. I've got a draft you'd probably call a social strategy, but we're calling it a thriving community, so what is our role in the community? How can we measure our impact and what should we be doing? (we have) gone through a period that was very compliance based- its based on our compliance with legislative requirements…but when you think about it at a more aspirational level in terms of thinking about indigenous values and communities right through the whole spectrum- right from planning and how we actually think about it in infrastructure and managing our natural assets not just we need to make these modifications to build this thing – we’ll engage you at that point From a water sense, you can look at projects from a water, sewerage or waterway point of view, but there is this broad church of benefits around liveability, sustainability, public health etc and build them into the business case and look and say how from a whole does it works but then it becomes a funding issue and a decision making issue when you realise you have these benefits over and above what I normally do, but someone else has to pay for it. No doubt for transport you can say the same thing- eg update the open space in the city of Glen Eira by raising the railway lines- but who is going to pay for that, unless its mandated. That is a challenge facing us now. Water for Victoria commits to involving indigenous Australians in planning… What is now required is to bring indigenous values into what we do and servicing strategies Now everything in that risk assessment with regard to Aboriginal values came out as high risk, because we don't understand them. So it's a lack of information on the risk so then that's all communicated back to all our documents to support the work program is coming out of the Aboriginal program. I look at a utility as a bit of a service delivery model -why don't a water utility decide to run fifty childcare centers? Because that's not what I was set up to do, where a utility generate electricity ? Yeah well that’s where it gets in the eyes gray area because there's things that they clearly shouldn't do. So I think utilities are in a good place to think about what value or are we creating and what could we do for the community but I don't think they're the place to unilaterally decide on all issues clearly if it's water or waste water and even if it's a waste to energy or some all but if it was hey let's go to now a gas fired power plant on that vacant block of land, then that’s not on. So I say it's the utility is a great place to know what public value they can deliver and what what capacity it has to deliver it but I don't think it's its own authorizing environment and so that's where you bring the regulator and government in. I’m still struggling how you capture that in Melbourne the Worlds Most Liveable City in the values for protecting a reliable water supply to protect the green – I am left with arbitrary ways of calculating it if we took our mandate, we should only be looking at water and sewage. We are willing to go beyond those boundaries. Whether its land development, whether its looking at some of our technology ideas that look into areas of the water cycle that are beyond our responsibility- we are actively trying to do that.

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Other water utilities aren’t comfortable with going outside their paradigm- ie we provide water and sewage. We are an organisation that should be engaging across the broader water cycle – that’s another part of my role is to make people aware of the broader context and the value proposition of the services that we provided. That is a challenge. It’s a level of maturity we can make decisions as a business, but we're taking the money from our community to pay for something in an area where the benefits go to other people, so we've got all those things we're still to face though.

Customer Benefits (Dis-benefits)

So, what the IP&L opened up to us is probably simplistically the social domain, but it is one of everything we do has an impact so when we build a treatment plant it has good, but it also can smell, it can be noisy. We have a buffer distance so people don't queue up to buy land around it, so we've got to actually see that there is negative impacts and then asking the questions what's the magnitude of the positive and what's the magnitude of the negative? As a result, we get caught in these traps of “we have a desal plant, we don’t need water” but its still of value to the customer. We talk about diversity to meet customer needs but in practice, we struggle with that. In the end this was a planning issue - land planning guidelines did not encourage aggregating land to the required size. The land planning process works against aggregation, and instead encourages hobby farmers…We worked through all the factors- what do you need for a market, how would the trucks move. In the end, this was a Council project as they had control over these matters. We met with Councils and one mayor was willing to take it forward where the water authority would act as the service provider. We identified that Council needed to take it forward- there were plans at the time to change the urban boundaries. Other considerations were the need to reconsider the urban boundary (of Melbourne) taking account of the need to preserve viable agricultural land. The costs outweigh the benefit. But it is government policy, the decision has been around for 20 years or whatever it is so our customers are paying this cost for this environmental benefit

Business Benefits

people will respect their water corporation- they know who they are – they have a social licence to do things in their communities as well- through their definition of responsibilities and what they do gives them a certain amount of kudos to go out and do certain things It might be a level of trust then- so people who know who (us) are in the community – its low it’s something like 20/25%- who can actually describe what we do- there’s a very high trust level. So when we do approach the community, maybe its, I don’t know. And when we haven’t engaged, it has gone astray. We understand that it is probably a greater benefit to the business to spend money and time in engagement up front in the process- how much is that worth in dollar terms in not stuffing up and having to go back and change your design somewhere along the line and do works that you never planned to do.


Appendix P

Explanatory results table: value assessment


Economic Value So let’s find the best value solution- I deliberately use the word “value” – not least cost solution because in many cases the best value solution may be more expensive than the least cost solution, but the customer or the community value that greater. And going through that process, where you identify value propositions such as we want to use recycled water for our gardens etc- testing that I want to know if that is real, and quantifying it or if not quantitatively challenging it, so I build what that value proposition is. The other part that I go through is that I always compare that to Business As Usual and actively challenging what the real BAU is, because often there are often a bunch of hidden future costs that are not being counted. You can look at the impact on charges of offset charges and tariffs and those sorts of things and whether it fits within your core business or not. But for this, largely user pays and metered, then the sector funds itself through its governance model. So there's an augmentation that needs to be done and it should be funded through its existing customer base and go through the ESC process and impact on tariff in the end. Whereas roads don’t get funded through registrations. Or new train lines can't built through public transport fees. It’s the 20 year plus stuff that you really want to identify and the problem is the government discount rates kill you in a business case sense- anything over ten years is so discounted where in fact the real cost of those works is about CPI or for some you would even think about a negative discount rate. but most large organisations from governments to public utilities apply a financial lens to the final decision and in the case of the Water Corporation, they had what they called FIS (financial impact statements) and they would make assumptions about the asset life and operating cost and the capital cost and they just wanted numbers for that which is completely insane as there is no chance of predicting the whole of life asset coast over 35/ 50 years. we only succeeded in getting that going at the level of planning but it reverts to financial analysis in final decision making, with some consideration of social concerns and environmental constraints, but they weren’t integrated- for example they would say we can’t do this option because we won’t get environmental approvals for it rather than valuing the environmental components. It's a journey that we're on, and so internally we have to convince ourselves first that it is core to our business and that it actually delivers collective value and then what is the cost and what is the benefit? Who pays? Generally, it's cost shifting is the question and then we can make decisions as a business, but we're taking the money from our community to pay for something in an area where the

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benefits go to other people, so we've got all those things we're still to face though. it's all delivering a better outcome for us, so it a financially better model. When we're looking at our energy case, again, it's all built around the financial model and if we're going to generate all our energy my 2025, we're going to be lowering our bills. We're paying 3.7 million now, that's only going to go up, so if we can actually generate our own energy, it's a very good business model. The emerging issue for me is the funding of those things rather than identification in Business Case, and the second part is getting realistic values for some of those externalities to what SEW might deliver- whether they are market or non-market- getting something that is realistic. Previously when there was a carbon price carbon was included as an externality, but now its not there. What we do is say here is the economic analysis and then look at additional lens such as a multi- criteria.which picks up that this is really energy conscious or something that I’d like to get into the economics. One of the risks is double counting I’ve seen business cases that have priced energy, probably added a carbon price in and then says that it is energy intensive- yes I know that because its over in the (quantified) economic The concept of looking at the long term was good- that’s why I initiated the long term avoided cost model. We have all these models, we have a long term population projection- lets lay it on, look at it, see where it falls over, do a quick cut of the costs that you are eventually going to do that gives you a basis to start your business casing, it also gives a basis to drive your thinking. And get it separated from the regulatory pricing games- which are five to ten years. This is the ten years plus…so we are starting to see that happen, but there is still a lot of “head in the sand” thinking- like well I can avoid this in this pricing period. Ultimately we are going to hit some major constraints where you can’t just keep deferring. And any of the works that are part of the regime of progressive avoidance really need to have been started twenty years prior. It’s the 20 year plus stuff that you really want to identify and the problem is the government discount rates kill you in a business case sense- anything over ten years is so discounted where in fact the real cost of those works is about CPI or for some you would even think about a negative discount rate. We are willing to go beyond those boundaries. Whether its land development, whether its looking at some of our technology ideas that look into areas of the water cycle that are beyond our responsibility- we are actively trying to do that.

Development Value But so that project so we cost it at $300 million or something and said that 600 people would benefit, looked at the life cycle period, assessment period. And then that was obviously never gonna get up They just did the work of creating this big volume of water without developing a market place for- which I think it’s not so good.


an acceptable externality is the increase in land value by the community that is being created- and so most economists would include that in the economic argument and say by doing this particular solution, the land is worth 100 units more, but it’s a benefit to the developer whereas the investment is by the utility or the householder- so for me, there is a disconnect. Someone might come along and say I’ll buy ETP, I'll give you $4 billion you guarantee to provide sewage for 50 years and I do whatever pay me to provide that service. Government's going to have a hard time saying I’ll forgo $4b. And for the WTP, this is about protecting this asset so that we don’t want to sell. It's about backing itself as an organisation and saying we don’t want to sell this. It has been tagged as the site of the new port .. it's going to be with the new juvenile facilities, right? ] So they don’t have a comprehensive view of its use- they have a land use plan but not a master plan I think we do have to get better evaluation there is some work to do there. One of things we haven't covered here is funding. So you and you can identify in a business case- if you do it well. Say if you take recycled water schemes may defer the need for capital elsewhere in your network. Yet so by really doing your recycled water scheme you may avoid a treatment plant upgrade that you knew you going to have to in ten years time. And that treatment plant might be worth a hundred million dollars. But nobody's given you that hundred million dollars for the treatment plant. So you cost that into your business case. This has got a value, say of five million dollars a year and it gets a business case over the line. You need an actual mechanism to monetize that saving because that saving is ten years in the future. It’s like when you say if I get a motorbike we might not have to buy that a fifty thousand dollars car in two years' time- but you don't have that fifty thousand dollars. That's so that that future price rises or future value come in. So there's got to be a mechanism for that Nobody's paying for that treatment plant so you've got to actually find a mechanism to pay an extra five million dollars now to save that hundred million dollars So that is a mechanistic way of doing Nobody's arguing is not a good idea but you need the funding mechanisms to actually get you that revenue. You've got to have a mechanism for actually funding deferred and avoided capital costs today because they're not in yet- they don't magically appear. We did a benefit cost analysis to demonstrate…the interesting thing we found was the revenue we earned as a function of the growth was greater than the cost of the project. It was just a little bit more expensive than business as usual. I would love to have it (liveability) quantified- someone may have done it- but to bring it down to water its really hard to find quantified data so we end up with avoided costs and the quantification of the value of property- there are the two things I use. The development generated in the business case identified that there was significant uplift in property value. The ability to collect it off developers was very minimal. The business case could demonstrate that we could actually receive revenue as a consequence of the development that could more than offset the costs that we expend. And the Board and the Execs are still struggling with that because the whole thing that that the development is generating value for the

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business was actually being taken out of the analysis in the business case. So the value proposition of the development – I had to build that argument- the acceleration of the rate of the development as a consequence of the works probably would have offset more than the extra cost as I get additional revenue earlier because it is an attractive place to live with all the green stuff. The process to do all that linking is really really hard, and having clarity in building the business cases – clarity in what is the value propositions- is a really important part. And then going to try and work out we agree this has value, what do we value it at? So yes we would have talked to them about the hedonic pricing, you would expect the rates to increase and that when we used that material and that material about how it might benefit the broader community to form those partnerships and create that coalition you actually if you look at the before and after photos of and you look at the houses that are on either side of that that now have a park which before was a massive sewer with a fence. All open sewer. You can easily say that the property value has increased by 10% or whatever, easily say the most houses you just look at it and know those houses are worth more now than before that path w

Social Value There is still work to do in funding intangibles because they don't necessarily plan themselves. It was about throughout the life of the project, it constantly taps in to the corporate value equation and value proposition- I have done work with some organisations on this. The best example I saw/ used was where Sydney Council had a requirement for affordable housing and it was clear how they brought in the sustainability component (the community side), but it also needs to be financial sustainable as well- eg if the business goes bust, then you can’t deliver community sustainability But what I’m saying is that there is a huge difference in each town and city as to what they react to. Its trying to derive what that value proposition is for the city. Because if we want to think of ourselves as water authorities providing more than water- drinking water, staking away sewage and treating it, flooding services, and waterway services and we want to think about in terms of how we actually contribute to the urban form, and how we use water for parks and recreation and how we work with councils so we start thinking about it. I think about in terms of Maslow’s hierarchy in that we have done some of the basics, we need to move into more complex areas where it is cross organisational and we are delivering desires more than basic needs. One of the more interesting talks at OzWater for me was where the guys from New Zealand – how they had involved Moari people into specific water treatment and sewerage treatment projects in terms of bringing their values into the design of a project- and some of the aspects were , and I was sitting next to someone who plans our sewerage treatment work and she was saying “but there’s no backup in terms of public health” and I think this is part of the conversation, the community and indigenous groups were happy with that outcome,


is that acceptable. What I found fascinating about that was not only had they involved them in the planning in the treatment plants and you got things like discharge channels that looked like concrete channels with rocks cemented to it but there was some form of spiritual cleaning that was important to the moari tribe of that area- which based on them being involved in that design process. Or the example where they had them involved in the performance of the treatment plant through cultural values around shellfish and picking up fish in the food chain to analysis the performance of the treatment plant discharge based on the impacts to the shellfish in the bay was. So I listened to that talk and thought we have miles to go.

Ecological Value

until very recently, there has been little effort to include a wide range of externalities in decision-making analysis in business and industry. They felt that the values- this was when we asked them in a workshop- they felt that they didn’t feel that a lot of the quantitative values could be applied to their geographic area. So they had to then redo it all again. So it didn’t suit their needs when they had to put in values for projects or business cases- so that was the main issue for them. Melbourne being the worlds most liveable city does result in it being more attractive to international industries setting up in Melbourne rather than other cities because they can say this is the best city in the world for their key employees to move there. So that’s creating a whole lot of economic value for Melbourne. What’s the role of water in that liveability, well its helping to support the green. You have to break it down and say what’s the value of that fantastic environment there, well its pretty high and water is an underlying support for that and if you didn’t have it, the trees would brown and die. So you pour a whole lot of water on there- but why can’t you use desal? Well you can, but from the perspective of the best use of your water resource, is that the best answer? Or should you be opportunist and take opportunities as they arise to decrease your environmental footprint. How do you value that? You may want to pay less than potable water but you may value it higher. Ultimately, the Western Treatment Plant has the second highest density of bird life next to Kakadu, so there is actually value there, but how do you capitalize that value?

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Appendix Q

Explanatory results table: trade-offs


Negotiation that gets really in your business cases and what ends up happening is that the beneficiaries keeps discounting their benefit so they have to pay less. One of the ways of getting over that is to say we are a whole-of-government – we are all owned by government – if the government agrees, well yes we are willing sacrifice this year to achieve a best for community solution. So there’s that grid oversight function that’s looking at, which is still being worked out around how it works, how water is traded within the southern sector. So the retailers really wanted to see some kind of grid oversight option, transparency around where Melbourne Water is spending their money and then it comes to avoided system costs which is one of these benefits of green infrastructure- you don’t have to upgrade your grid network. Revealing those costs so you can build them into a business case saying…like what Yarra Valley Water has done in their northern growth areas- they are not hooking into the western treatment plant and not build a $300m trunk sewer , they are building small scale recycled water plants and then they will put a pipe in there and sell recycled water as well And so Sydney Water went back to the EPA and said if we have a risk based approach to managing wet water overflows, we can achieve this for $500m rather than $5b and then we can keep on going. If a site is important for amenity value, then we are only going to do this solution. So some people in Park Orchards don’t want it because they fear development, others want it as there will be development, others want to contain their waste on site if they can and so we have been consulting worth that community on an individual basis for months, years by now and we will continue until we get a solution. When we major capital projects, well we have learnt over time that you have to get the community on board with whatever you are doing and show that you have considered their views. At that level, we are absolutely committed to it and it works really. We have learnt that you can’t just go ahead where you have to negotiate with the community about what is acceptable and what is not- can you live with this outcome. My simple answer is that that if you solve that problem we have cracked the chestnut. That’s the one that, I don’t know if there is in any way, If you can get them to sit down and agree to agree upfront regardless of what this says, if this says that it is positive to you then you pay what this says, if it says its negative then you get that value. In the end its this issue of in the real world you have to negotiate and that’s what the industry is not really good at. So apart from you get an agreement up front and live with the consequences or you get better at negotiating- hopefully we are getting better at negotiating with the community and we have to get better at negotiating with stakeholders.


Some people would say that that’s not fair but actually to get the ultimate community outcome, may be you do have to horse-trade and as we know that’s what happens in the real world. But governments are always, I have seen so many papers over the years, economists can’t answer that question. It’s about negotiation in the end and as I said I don’t think that our industry is all that good at it.

Who pays that gets really in your business cases and what ends up happening is that the beneficiaries keeps discounting their benefit so they have to pay less. One of the ways of getting over that is to say we are a whole-of-government – we are all owned by government – if the government agrees, well yes we are willing sacrifice this year to achieve a best for community solution. So for those pricing impacts, they were having to think of financing decisions so they could modify the pricing impact on their communities and that pricing impact was a much more important thing. They were very often trying to think- back in those days- they could possibly get some money out of government so it wasn’t just the economic model – it was thinking about that pricing impact. So the economic model might have been important but it was, even if it was a more expensive economic model because it serviced reuse or something like that- they were then looking to governments to help them.

Evaluation I think Multi-criteria analysis has a lot to answer for as well… because you are not going to get any one proposal that beats another proposal on every aspect of the multiple criterian. So you have two ideas- one is more expensive but has better environmental outcomes, so you go how do we judge the relative merits of those. Well say that you had three options- one might be dominated by the other one – dominance would mean that you have one metric CBA or multiple metrics – if its better on every aspect.. if you have two different ones that perform differently, you can then assess the different trade offs that makes one better than the other. (eg We can do the underground tunnel v the surface rail link- different characteristics and costs- so the benefits of the rail link are achieved no matter what but we have some very different costs and neighbourhood benefits- they are the differences that we can compare them in pricing- if you value this, then this is better, if you value that, then that is better- its something you can do without throwing all the information and assuming the trade off at the start of the analysis One of the key decisions for us is how much alternative water do we provide- then we can think through where we get that alternative water from- from sustainability and environment- do we get it from stormwater which has its consequences or do we get it from wastewater which has different consequences- you are trading off two different sets of environmental outcomes and some of those things can play out over time- 50,000 lots could happen over thirty years.So you have some time to get the right answer..